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The Clawbacks Are Coming – AAF

In the coming days, the Centers for Medicare and Medicaid Services (CMS) is expected to release a major final rule regarding a few aspects of Medicare Advantage (MA). The main concern about the rule focuses on a section concerning the clawing back of improper payments, known as the Risk Adjustment Data Validation (RADV) provision. The changes to the RADV rule will determine how much money CMS can recover from MA plan sponsors – with stakes in the trillion of dollars.

A quick summary of how CMS makes MA payments: CMS gives MA plans a per-beneficiary amount, with a variety of factors, such as location and beneficiary health, influencing the value of that payment. Crucial for our purposes, the sicker the beneficiary population, the greater the payment amount – a calculation known as risk adjustment. MA plans that manage to reduce spending can keep some of the savings.

The risk adjustment provision, which requires documentation of patient conditions self-reported by MA plans, is the subject of the new RADV rule. CMS’ current RADV process annually selects a given number of plans to review a given number of payments from prior years. If over- or under-payments are found, those mistakes are subsequently corrected by CMS, which either claws back money from MA plans or pays them more. The proposed rule makes the claim that CMS has the ability to aggregate payment errors from its sample size into a payment error rate, and then apply that rate to the entire MA contract (which CMS does not currently do) – meaning CMS can claw back payments from across the entire MA contract. For example, if CMS finds that a sample of beneficiaries in an MA contract had a 20 percent overpayment rate, it could claw back 20 percent of all payments to that MA contract. Moreover, the RADV rule will allow CMS to audit, extrapolate, and recover money from MA plans as far back as 2011.

In a case of statistical malpractice, CMS is arguing that it can use a small sample size, as low as 201 MA beneficiaries per audited contract out of an average of roughly 36,000 beneficiaries per contract, to then broadly extrapolate an improper payment rate across the whole MA contract. CMS also propose focus[ing] on cohorts of enrollees that appear to raise programmatic concerns.” How CMS could possibly determine what cohort appears to “raise programmatic concerns” before auditing is left unsaid by the agency. As any high school statistics student knows, the smaller the sample size, the more inaccurate the conclusions. In CMS’ defense, the small sample size is likely driven in part by a lack of resources; in 2023, there are 794 MA contracts made up of 5,764 plans covering roughly 30 million people. One can see the immense challenge in auditing the medical records of even a fraction of that number.

The RADV rule’s expected changes have MA plan sponsors howling—which makes clear why this rule, proposed in 2018, is just now being finalized. To be sure, the timing of the release closely follows an unforced error by MA plan sponsors. As discussed in a previous Weekly CheckupMA plans are under fire for a suspiciously high amount of upcoding that made beneficiaries appear sicker than they were – and subsequently ensured MA plan sponsors got paid more. But CMS’ methodology in the RADV provision raises major questions and the agency must ensure a statistically accurate sample size. With billions of dollars at risk, CMS’ proposed methodology could push plan sponsors to jump ship, weakening one of the federal government’s most popular programs.

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