Does $428 million dollars sound like a lot of money to you? If you are a Medicare Advantage (MA) plan or provider, buckle your seat belts because that is the annual dollar amount the Center for Medicare and Medicaid Services (CMS) expects to recover as a result of risk-adjusted data validation (RADV) audits. On January 30, 2023, CMS codified the long-awaited RADV Audit Final Rule. Years of speculation and extensions resulted in a Final Rule that expects CMS to utilize extrapolation methodology to produce more than $428 million annually in net recovery. The total estimated recovery amount between 2023 and 2032 is $4.7 billion.
The purpose of a RADV audit is to validate the amount of money CMS pays to a single MA plan, thus, ensuring that healthcare costs incurred by the plan’s members are appropriate. All money recouped by RADV audits goes back into the Medicare Trust Fund, safeguarding the Fund’s viability for generations to come. The solvency of the Fund continues to garner public and political attention as it focuses on Medicare Part A benefits. Current projections from the Kaiser Family Foundation and Medicare Board of Trustees is that the Fund will be depleted by 2028.
It is important to note that MA programs (Part C) are not separately funded. They are financed through Part A, Part B, and typically Part D. Finances for Part A benefits are drawn from the Medicare Trust Fund, accounting for as much as 42% of Part A and B benefits. Finances for Parts B and D are drawn from the Supplementary Insurance Trust Fund. Beneficiaries enrolled in MA plans pay both Part B premiums and additional premiums for their insurance.
As many as 200 MA plan enrollees from each MA plan will have the potential to be chosen for an audit. Members are selected based on clinical claims data submitted for the beneficiary. A review of documentation will determine if the patient’s illnesses are clinically validated and treated by the provider. Errors identified will be used to determine an overall error rate for the plan and then extrapolated over multiple years (2018-2022). The extrapolation methodology assumes that the same errors found on 200 records will be found on 2,000 or 20,000 records.
In addition, the final rule provides that CMS may collect extrapolated overpayments identified in either CMS RADV or US Department of Health and Human Services Office of Inspector General (OIG) audits beginning with the year 2018.
All of these factors result in new retroactive RADV that will create new financial obligations for Advantage programs. The elimination of the FFS factor as an offset to extrapolation amounts and the expected increase in auditor activities, generates ambiguity in the marketplace. MA plans may want to plan for a new bid process. Plans will be required to estimate any potential rebates or premiums based on increased audit recoveries. Any substantial penalty will necessitate some type of recovery process. One large penalty could have long-lasting negative effects on profitability. In addition, the Rule will most definitely affect the financial reporting treatment associated with high-risk liabilities.
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