[Federal Register Volume 88, Number 21 (Wednesday, February 1, 2023)]
[Rules and Regulations]
[Pages 6643-6665]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01942]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 422
[CMS-4185-F2]
RIN 0938-AT59
Medicare and Medicaid Programs; Policy and Technical Changes to
the Medicare Advantage, Medicare Prescription Drug Benefit, Program of
All-Inclusive Care for the Elderly (PACE), Medicaid Fee-For-Service,
and Medicaid Managed Care Programs for Years 2020 and 2021
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
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SUMMARY: This final rule announces certain policies to improve program
integrity and payment accuracy in the Medicare Advantage (MA) program.
The purpose of this final rule is to outline our audit methodology and
related policies for the contract-level MA Risk Adjustment Data
Validation (RADV) program. Specifically, this final rule codifies in
regulation that, as part of the RADV audit methodology, CMS will
extrapolate RADV audit findings beginning with payment year (PY) 2018
and will not extrapolate RADV audit findings for PYs 2011 through 2017.
We are also finalizing a policy whereby CMS will not apply an
adjustment factor (known as a Fee-For-Service (FFS) Adjuster) in RADV
audits. We are also codifying in regulation the requirement that MA
organizations (MAOs) remit improper payments identified during RADV
audits in a manner specified by CMS.
DATES: This final rule is effective on April 3, 2023.
FOR FURTHER INFORMATION CONTACT: Joseph Strazzire, 410-786-2775 or
David Gardner, 410-786-7791.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
Contract-level Risk Adjustment Data Validation (RADV) audits are
our main corrective action for overpayments made to Medicare Advantage
organizations (MAOs) when there is a lack of documentation in the
medical record to support the diagnoses reported for risk adjustment.
The purpose of this final rule is to outline our audit methodology and
related policies for the contract-level RADV program. Specifically,
this final rule codifies in regulation our approach to the use of
extrapolation, our decision to not apply an FFS Adjuster in RADV
audits, and the payment years in which these policies will apply.
We are finalizing that, as part of the RADV audit methodology, CMS
will extrapolate RADV audit findings. We are not adopting any specific
sampling or extrapolated audit methodology, but will rely on any
statistically valid method for sampling and extrapolation that is
determined to be well-suited to a particular audit. Rather than
applying extrapolation beginning for payment year (PY) 2011 audits as
we proposed,
[[Page 6644]]
we are finalizing a policy whereby we will not extrapolate RADV audit
findings for PYs 2011 through 2017 and will begin extrapolation with
the PY 2018 RADV audit. As a result, CMS will only collect the non-
extrapolated overpayments identified in the CMS RADV audits and
Department of Health and Human Services Office of Inspector General
(HHS-OIG) audits between PY 2011 and PY 2017, and will begin collection
of extrapolated overpayment findings for any CMS and OIG audits
conducted in PY 2018 and any subsequent payment year. We believe that
this is an appropriate policy because it recognizes our fiduciary duty
to protect taxpayer dollars from overpayments, and preserves our
ability to collect on potentially significant amounts of overpayments
made to plans beginning in PY 2018 using an extrapolation methodology.
This final rule will also allow CMS to focus on conducting future RADV
audits as soon as practicable after an MAO payment year concludes,
which was the topic of significant public comment to the proposed rule.
Lastly, we have determined that it is in the best interest of all
parties to ensure that the contract-level RADV appeals process, which
is also outlined in regulation, is able to successfully process all
RADV appeals. By not using an extrapolation methodology prior to PY
2018, we expect to better control the total number of active appeals
that are submitted in the first few years following finalization of
this rule, which will alleviate burden on MAOs and CMS.
We are also finalizing a policy whereby CMS will not apply an FFS
Adjuster in RADV audits because we have determined that an FFS Adjuster
is not appropriate. As described at great length in this final rule, we
have decided not to apply an FFS Adjuster in RADV audits because: (1)
we believe, consistent with the D.C. Circuit's decision in
UnitedHealthcare (UnitedHealthcare Insurance Co. v. Becerra, 16 F.4th
867 (D.C. Cir. August 13, 2021, reissued November 1, 2021), cert.
denied, 142 S. Ct. 2851 (U.S. June 21, 2022) (No. 21-1140)), that the
actuarial equivalence provision of the statute applies only to how CMS
risk adjusts the payments it makes to MAOs and not to the obligation of
MAOs to return improper payments (for example, payments for unsupported
diagnosis codes); and (2) it would not be reasonable to read the Social
Security Act (the Act) as requiring a reduction in payments to MAOs by
a statutorily-set minimum adjustment in the coding pattern adjustment,
while at the same time prohibiting CMS from enforcing longstanding
documentation requirements by requiring an offset to the recovery
amounts calculated for CMS audits.
We are also codifying in regulation the requirement that MAOs remit
improper payments identified during RADV audits in a manner specified
by CMS. After the effective date of this final regulation, on a rolling
basis (over a period of months, which will be communicated to MAOs by
CMS), we will begin issuing the enrollee-level audit findings from the
CMS RADV audits that have been completed, as well as recovering the
enrollee-level improper payments identified in HHS-OIG audits.
Nothing in this rule changes the longstanding principle that a
diagnosis code that is not documented in a patient's medical record is
not a valid basis for CMS risk adjustment payments to an MAO.
UnitedHealthcare Ins. Co. v. Becerra, 16 F.4th 867, 869 (D.C. Cir.
2021) (``Neither Congress nor CMS has ever treated an unsupported
diagnosis for a beneficiary as valid grounds for payment to a Medicare
Advantage insurer.''). Nor does this rule change the longstanding
obligation of an insurer to refund payments to CMS if it learns through
any means that a diagnosis lacks support in the beneficiary's medical
record. Id.
II. Background
A. General Overview of Risk Adjustment Payments in the MA Program
The Balanced Budget Act of 1997 (BBA), Public Law (Pub. L.) 105-33,
established a new Part C of the Medicare program, known then as the
Medicare+Choice (M+C) program, which became effective in January 1999.
As part of the M+C program, the BBA authorized CMS to contract with
public or private organizations to offer a variety of health plan
options for Medicare beneficiaries. These health plans provide all
Medicare Part A and Part B (also known as ``Original Medicare,'' or
``Medicare FFS'') benefits, and most offer additional benefits beyond
those covered under the Medicare FFS program. The M+C program in Part C
of Medicare was renamed the Medicare Advantage (MA) program under the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA) (Pub. L. 108-173), enacted in December 2003. The MMA updated and
improved the choice of plans for beneficiaries under Part C and changed
the way benefits are established and payments are made. As of August
2022, over 29 million individuals receive their Medicare benefits
through MA, which represents nearly half of the total Medicare
beneficiary population.\1\
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\1\ CMS, CMS Fast Facts, August 2022 Edition, pg.1, https://data.cms.gov/sites/default/files/2022-08/4f0176a6-d634-47c1-8447-b074f014079a/CMSFastFactsAug2022.pdf.
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Section 1853(a)(1)(C) of the Act requires that CMS risk-adjust
payments made to MAOs. Risk adjustment strengthens the MA program by
ensuring that accurate payments are made to MAOs based on the health
status and demographic characteristics of their enrolled beneficiaries,
and that MAOs are paid appropriately for their plan enrollees (that is,
less for healthier enrollees who are expected to incur lower health
care costs, and more for less healthy enrollees who are expected to
incur higher health care costs). Making accurate payments to MAOs also
ensures we are safeguarding Federal taxpayer dollars.
The current risk adjustment model employed to adjust MAO payments
is known as the CMS Hierarchical Condition Category (CMS-HCC) model.
This model functions by categorizing International Classification of
Disease, Clinical Modification (ICD-CM) \2\ diagnosis codes into
disease groups called Hierarchical Condition Categories, or HCCs. Each
HCC includes diagnosis codes that are related clinically and have
similar cost implications. There are approximately 9,875 diagnoses
mapped to 86 HCCs in the CMS-HCC Risk Adjustment Model for 2022.\3\ MA
enrollee HCCs are assigned based on data submitted to CMS by MAOs. The
HCCs contribute to an enrollee's risk score, which is used to adjust a
base payment rate. Essentially, the higher the risk score for an
enrollee, the higher the expected health care cost for the enrollee and
the greater payment that is received by the MAO.
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\2\ The ICD-CM is a modification of the ICD, authorized by the
World Health Organization, used as a source for diagnosis codes in
the United States. The ICD-CM has been adopted by the Secretary as
the standard medical data code set. See 45 CFR 162.1002.
\3\ Source: 2022 Midyear Final ICD-10 Mappings at https://www.cms.gov/files/zip/2022-midyear-final-icd-10-mappings.zip.
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The CMS-HCC model was first used for payment in 2004 and has been
recalibrated numerous times since then. When CMS recalibrates the CMS-
HCC risk adjustment model, it uses data from Medicare FFS claims, using
diagnoses in one year to predict the following year's expenditures.
Claims data from beneficiaries enrolled in the Medicare FFS program are
used to calibrate the CMS-HCC model, which produces a set of
coefficients (also known as risk
[[Page 6645]]
factors) that represent the marginal (additional) cost of each medical
condition and demographic factor reported for a given beneficiary. (For
additional information, see the Medicare Managed Care Manual, Ch. 7,
section 70.1.\4\) Each beneficiary's risk coefficients are added
together to form a risk score for that beneficiary that is used to
adjust the insurer's base payment rate for that beneficiary.
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\4\ https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/mc86c07.pdf.
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The diagnosis data that MAOs submit to CMS do not undergo a
validation review by CMS before being relied on by CMS to calculate
each enrollee's risk score and make payments. Because there is an
incentive for MAOs to potentially over-code diagnoses to increase their
payments, that is, to code diagnoses not properly substantiated by
medical record documentation, CMS conducts post-payment audits of MAO-
submitted diagnosis data from a selection of MAOs for specific payment
years to ensure that the diagnoses they submitted are supported by
their enrollees' medical records. These audits are called contract-
level Risk Adjustment Data Validation (RADV) program audits. While RADV
audits are intended to identify improper risk adjustment payments, they
are not specifically designed to detect fraud,\5\ nor are they intended
to identify all improper diagnosis submissions made by MAOs for risk
adjustment payment.\6\
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\5\ For example, the Department of Justice is responsible for
pursing potential violations of the False Claims Act, which includes
certain elements of knowledge.
\6\ CMS contract-level RADV audits focus on specific MAO
contracts to determine and recoup improper payments. The HHS-OIG
also undertakes audits of MAOs, similar to RADV audits, as part of
its oversight functions. CMS can collect the improper payments
identified during those HHS-OIG audits, including the extrapolated
amounts calculated by the OIG. CMS also oversees the Part C Improper
Payment Measurement, previously referred to as ``national RADV,'' to
determine a program-wide improper payment rate as required by the
Payment Integrity Information Act of 2019 (Pub. L. 116-117). In
addition to risk adjustment oversight conducted by CMS, HHS also
oversees HHS-RADV, which was created by the Affordable Care Act to
strengthen the integrity of the Affordable Care Act Marketplace by
validating the accuracy of data submitted by issuers that is used to
calculate the amount of funds transferred to insurers based on the
actuarial risks of the individuals they enroll. Neither the Part C
Improper Payment Measurement nor the HHS-RADV programs are subject
to the provisions of this final rule.
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B. Purpose and Description of Contract-Level RADV Audits
The improper payment measurements conducted each year by CMS that
are included in the HHS Agency Financial Report, as well as audits
conducted by the HHS-OIG, have demonstrated that the MA program is at
high risk of improper payments. In fiscal year (FY) 2021 (based on
calendar year 2019 payments), we calculated that CMS made over $15
billion in Part C overpayments, a figure representing nearly 7 percent
of total Part C payments.\7\ The HHS-OIG has also released several
reports over the past few years that demonstrate a high risk of
improper payments in the MA program,\8\ and for several years has
identified the MA program as one of the top management and performance
challenges facing HHS due to the high amount of improper payments.\9\
The Medicare program, including MA, has also been identified by the
Government Accountability Office (GAO) as a high-risk program due to
the risk of substantial improper payments.\10\
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\7\ HHS, FY 2021 HHS Agency Financial Report, pg. 211, https://www.hhs.gov/sites/default/files/fy-2021-hhs-agency-financial-report.pdf. CMS made over $23 billion in total Part C improper
payments. The improper payment measurement for the MA program in FY
2021included both overpayments ($15 billion) and underpayments ($8
billion).
\8\ For example, see reports: Medicare Advantage Compliance
Audit of Specific Diagnosis Codes That Anthem Community Insurance
Company, Inc. For example, see reports: Medicare Advantage
Compliance Audit of Specific Diagnosis Codes That Anthem Community
Insurance Company, Inc. (Contract H3655) Submitted to CMS, May 21,
2021, https://oig.hhs.gov/oas/reports/region7/71901187.asp; Medicare
Advantage Compliance Audit of Specific Diagnosis Codes That Blue
Cross Blue Shield of Michigan (Contract H9572) Submitted to CMS,
February 24, 2021, https://oig.hhs.gov/oas/reports/region2/21801028.asp; Medicare Advantage Compliance Audit of Specific
Diagnosis Codes That Highmark Senior Health Company (Contact H3916)
Submitted to CMS, September 29, 2022, https://oig.hhs.gov/oas/reports/region3/31900001.asp; Medicare Advantage Compliance Audit of
Specific Diagnosis Codes That Cariten Health Plan, Inc., (Contract
H4461) Submitted to CMS, July 18, 2022, https://oig.hhs.gov/oas/reports/region2/22001009.asp; Medicare Advantage Compliance Audit of
Diagnosis Codes That SCAN Health Plan (Contract H5425) Submitted to
CMS, February 3, 2022, https://oig.hhs.gov/oas/reports/region7/71701169.asp; Medicare Advantage Compliance Audit of Diagnosis Codes
That Humana, Inc., (Contract H1036) Submitted to CMS, April 19,
2021, https://oig.hhs.gov/oas/reports/region7/71601165.asp.
\9\ For example, see OIG, 2021 Top Management and Performance
Challenges Facing HHS, pg. 13, https://oig.hhs.gov/reports-and-publications/top-challenges/2021/2021-tmc.pdf.
\10\ GAO, Medicare Program & Improper Payments, https://www.gao.gov/highrisk/medicare-program-improper-payments.
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RADV audits are our main corrective action for overpayments made to
MAOs when there is a lack of documentation in the medical record to
support the diagnoses reported for risk adjustment. We select MAOs for
RADV audits using a risk-based approach that focuses on HCCs that are
more likely to be in error as identified by prior RADV audits, Part C
Improper Payment Measurements, and OIG findings, and other
vulnerability analyses. RADV audits occur after the final risk
adjustment data submission deadline for the MA contract year and after
CMS recalculates the risk factors for affected individuals to determine
if payment adjustments are necessary, as described at 42 CFR
422.310(g).\11\ RADV audits are intended to confirm the presence of
risk adjustment conditions (that is, diagnoses that map to HCCs) as
reported by MAOs in medical record documentation. RADV audits confirm
the presence of the diagnoses related to the enrollee's HCC profile
through the review of certain categories of medical records submitted
by the MAOs for the purpose of a RADV audit; specifically, inpatient
hospital, hospital outpatient facility, and physician/practitioner
(excluding suppliers of durable medical equipment, prosthetics,
orthotics, and supplies) medical records. Risk adjustment discrepancies
are identified when an enrollee's HCCs used for payment, which are
based on MAO self-reported data, differ from the HCCs assigned based on
the medical record review performed by CMS through the RADV audit
process. Risk adjustment discrepancies can be aggregated to determine
an overall level of payment error. In turn, payment error for a sample
of contract enrollees can be used to calculate a total payment error
estimate, for the larger universe of enrollees within an MAO contract
from which a sample is drawn, within specified confidence intervals
using statistical extrapolation.
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\11\ See the May 23, 2014 final rule titled ``Medicare Program;
Contract Year 2015 Policy and Technical Changes to the Medicare
Advantage and the Medicare Prescription Drug Benefit Programs Final
Rule'' (79 FR 29843, at 29926) for a more detailed discussion of the
timing and execution of the RADV audit and appeals process.
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C. History of the Contract-Level RADV Program
RADV audits have existed in various forms and approaches for over
20 years. RADV audits began for payment year (PY) 1999, when the amount
of payment made to MAOs on a risk-adjusted basis was small (10
percent). During the audit period from PY 1999 until PY 2003, our RADV
activity had an educational focus and was primarily intended to provide
information that could be used by MAOs to improve the accuracy of the
risk adjustment data submitted to CMS for payment. Payment adjustments
(recoveries) were limited to enrollee-level adjustments for those
enrollees sampled in the audits and were not extrapolated to the
overall error of the
[[Page 6646]]
contract. As a result, for the few MA plans we audited, payment
recovery amounts were small.
Risk adjustment payments using the CMS-HCC risk adjustment model
began for the first time in PY 2004. Because of various risk adjustment
payment methodology changes required in the BBA and the Benefits
Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554), we
provided a payment ``phase-in'' under the new risk adjustment
methodologies from 2000 to 2007, when MAOs' payments were 100 percent
risk-adjusted under the current methodology.\12\ Under the new
methodology that began in PY 2004, MAOs were required to submit
diagnoses from multiple sites of care, which increased the
administrative data burden on MAOs. Because of this burden and the
associated phase-in of the new methodology, CMS considered PYs 2004
through 2006 as pilot years for the purpose of the RADV program and did
not seek to recover improper payments for those payment years based on
the audit results.
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\12\ CMS, Advance Notice of Methodological Changes for Calendar
Year (CY) 2004 Medicare+Choice (M+C) Payment Rates, 4-5 (March 28,
2003), https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Advance2004.pdf.
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Improper payment recovery resumed for PY 2007, when we conducted
two sets of RADV audits: (1) Pilot 2007, which involved 5 MA contracts;
and (2) Targeted 2007, which involved 32 MA contracts. CMS began with
the Pilot 2007 audit to test the methodology and make any needed
changes before conducting the Targeted 2007 audit. CMS selected MA
contracts after measuring the weighted average change in disease scores
(risk scores) over the preceding 3-year period and grouping MAO
contracts as high, medium, or low relative to other MA contracts that
were eligible for a RADV audit. Through these two sets of audits, we
recouped $13.7 million. Payment adjustments were again limited to
enrollee-level adjustments for those enrollees sampled in the audits
and not extrapolated to the overall contract error. After CMS' findings
were reported to each MAO, any MAO that disagreed with CMS'
determinations could challenge them through an administrative dispute
and appeals process that was established by regulation (75 FR 19678).
This dispute and appeals process, as subsequently amended (75 FR 32858
and 79 FR 29844), remains in effect and allows for the appeal of the
medical record review determination and/or the payment error
calculation through a three-level administrative review process, as
outlined in 42 CFR 422.311. To date, CMS has not recovered based on
RADV audit findings for audit years after PY 2007, as described more
fully in this section of this rule.
1. Development of an Audit Methodology (PYs 2007 Through 2010)
After the RADV audits were conducted for PY 2007, CMS paused RADV
audits for PYs 2008, 2009, and 2010. CMS used those years to continue
refining the methodology for the RADV audits, including the
consideration of statistical methods to calculate extrapolated improper
payments based on the individual errors identified. The use of
extrapolation would enable us to make contract-level payment
adjustments rather than simply adjusting payments for specific
enrollees from an audit sample, as we had done previously.
On December 20, 2010, we published an informal proposal on the CMS
website that outlined our intended RADV methodology for: (1) selecting
a statistically valid sample of enrollees from each audited MA
contract; and (2) calculating a contract-level payment adjustment by
extrapolating the results of that sample. We invited public comment on
this proposed methodology.
2. Informal Proposal Comments and the FFS Adjuster
In response to the December 2010 informal proposal, some MAOs
suggested that CMS cannot lawfully enforce the requirement of medical
record documentation for diagnosis codes while making payments at the
published rates. These MAOs argued that there is a difference in
auditing standards between Medicare FFS and MA diagnosis data because,
in contrast to the MAO-submitted diagnoses data, Medicare FFS data is
``unaudited'' by CMS. This difference purportedly exists because most
FFS payments are made on the basis of the item or service provided and
not the beneficiary's diagnosis or diagnoses. For example, an office
visit is paid based on whether the evaluation and management service
billed met Medicare coverage and payment rules, not based on what
diagnoses are listed on the claim or in the medical record. As a
result, they argued, the Medicare FFS data used to calculate MAO
payments will understate the cost of treating various conditions and,
because erroneous diagnoses in the FFS claims data are used to
calibrate the MA payment model, CMS must either adjust payment rates
(by raising them) or adjust documentation standards (by loosening them)
to resolve the alleged incompatibility between the payment rates and
documentation standards. This proposed adjustment to the MAO payment
rates and/or documentation standard is referred to as an ``FFS
Adjuster.''
To understand the MAOs' argument about why an FFS Adjuster is
needed, some background is important. These MAOs ground their arguments
in section 1853(a)(1)(C)(i) of the Act, which requires the Secretary to
adjust payments to MAOs for demographic and health-related risk factors
so as to ensure ``actuarial equivalence.'' As described previously, the
Act requires that we calculate risk-adjusted payments to MAOs to ensure
that MAOs are paid appropriately based on the enrollees' health status
and demographic characteristics. The current risk adjustment model does
this by calculating plan enrollees' risk scores and, in turn, using
them to adjust the MAOs' base payment rates, which are the rates for
the average beneficiary.
This system of risk adjustment rests on two important principles.
First, MAOs' payments are calculated using the CMS-HCC risk adjustment
model, which is published each time it is updated (see section 1853(b)
of the Act).\13\ Second, an MAO may only report a diagnosis when that
diagnosis is properly supported by the beneficiary's medical records.
As we noted in our April 15, 2022 Health Plan Management System (HPMS)
memorandum, Reminder of Existing Obligation to Submit Accurate Risk
Adjustment Data, MAOs must submit data that conforms to all relevant
national standards, including the International Classification of
Diseases, Tenth Revision, Clinical Modification (ICD-10-CM) Guidelines
for Coding and Reporting requirement that diagnoses be documented in
patients' medical records. (See 42 CFR 422.310(d)(1); 45 CFR
162.1002(c)(2) and (c)(3).) The diagnosis codes and other risk
adjustment information that MAOs submit directly affect the calculation
of CMS payments to the MAO. A diagnosis code that is not documented in
a patient's medical record is not a valid basis for CMS risk adjustment
payments to an MAO. UnitedHealthcare Ins. Co. v. Becerra, 16 F.4th 867,
869, 877 (D.C. Cir. 2021). Medical records properly support a reported
diagnosis when they comply with all CMS data and documentation
requirements, which are described in current agency policy
[[Page 6647]]
documents, including the Medicare Managed Care Manual.\14\ In their
annual contracts with CMS, MAOs agree to operate in accordance with
applicable Federal statutes, regulations, and policies, including
policies described in the Medicare Managed Care Manual. MAOs are also
required to submit a sample of medical records for the validation of
this risk adjustment data, as required by CMS (see 42 CFR 422.310(e)).
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\13\ https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Announcements-and-Documents.
\14\ https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/internet-Only-Manuals-IOMs-Items/CMS019326.
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3. The 2012 Methodology
The feedback received from industry in response to the informal
proposal in 2010 was considered by CMS, and on February 24, 2012, we
issued on our website \15\ what we described as a final methodology for
RADV contract-level payment error calculation, to begin with PY 2011
RADV audits (referred to herein as the ``2012 methodology''). That
methodology described sampling techniques and a statistical calculation
to extrapolate from the sample selected, as well as the use of an FFS
Adjuster.\16\ (Although the use of an FFS Adjuster beginning with PY
2011 RADV audits was included in the 2012 methodology, CMS has not
issued final RADV audit results for PY 2011 audits or any subsequent
year, and therefore, an FFS Adjuster has not been applied to any RADV
audits issued by CMS to date.)
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\15\ CMS, Notice of Final Payment Error Calculation Methodology
for Part C Medicare Advantage Risk Adjustment Data Validation
Contract-Level Audits, https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/recovery-audit-program-parts-c-and-d/Other-Content-Types/RADV-Docs/RADV-Methodology.pdf.
\16\ Id. at 4-5.
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Sampling Technique: Under the 2012 methodology, up to 201 enrollees
from each audited MA contract would be selected according to certain
criteria. These criteria included, but were not limited to, the
enrollee's: (1) continuous enrollment in the MA contract for the entire
data collection year and January of the payment year; (2) lack of end-
stage renal disease (ESRD) or hospice status for the entire data
collection year and January of the payment year; (3) enrollment in
Medicare Part B coverage for the entire data collection year; and (4)
assignment of at least one CMS-HCC based on diagnoses submitted by the
MAO for risk-adjustment payment. The RADV-eligible enrollees would then
be ranked by risk score and divided into three equal strata (low risk
score, average risk score, and high risk score), with an equal number
of enrollees randomly selected from each stratum (for example, 67
enrollees per stratum in the case of an audit of 201 enrollees).
Payment Error Calculation: After medical records were reviewed,
payment errors would be calculated for each selected enrollee based on
the number of months the person was enrolled in the selected MA
contract (and also was not in ESRD or hospice status) during the
payment year. A payment error amount for each stratum would be
calculated, which could include both RADV-identified overpayments and
underpayments, and an overall payment error estimate for the audited
contract would be derived, along with a 99 percent confidence interval
around the payment error estimate.
FFS Adjuster: As part of the 2012 methodology, we also stated that
we would apply an FFS Adjuster before finalizing audit recovery. The
2012 methodology stated that the actual value of the FFS Adjuster would
be calculated by CMS based on a RADV-like review of records submitted
to support FFS claims data.
CMS subsequently conducted an extensive study regarding the impact
of such errors in Medicare FFS claims data for the purpose of
determining the appropriate value of an FFS Adjuster. This study found
that, in fact, errors in Medicare FFS claims data did not have any
systematic effect on the risk scores calculated by the CMS-HCC risk
adjustment model and, therefore, did not have any systematic effect on
the payments made to MAOs. On October 26, 2018, we published an
Executive Summary and Technical Appendix of our FFS Adjuster study
findings on the CMS website, which are available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medicare-Risk-Adjustment-Data-Validation-Program/Resources.html.
Additional information on this study can also be found in the November
2018 proposed rule.
4. The 2018 RADV Proposed Rule
In the 2018 proposed rule, to enhance transparency and provide
ample notice to MAOs, we proposed to codify in regulation our
methodological approach to RADV audits that would apply to all of the
payment year audits that have not yet been finalized. These
methodologies would apply to PY 2011 and subsequent years and include
our proposals to use extrapolation and not apply an FFS Adjuster to our
RADV audit findings.
5. Subsequent Federal Register Notices (2018, 2019, 2021, and 2022)
Since publication of the 2018 proposed rule, we have published
several related notices to further enhance transparency and encourage
robust public comment:
On December 27, 2018, we announced in the Federal Register
(83 FR 66661) an extension of the comment period for the proposed RADV
provisions until April 30, 2019, as well as a plan to release data
underlying the October 26, 2018, FFS Adjuster Study.\17\
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\17\ https://www.federalregister.gov/documents/2018/12/27/2018-28070/medicare-and-medicaid-programs-risk-adjustment-data-validation.
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On March 6, 2019, we issued a notice in the Federal
Register (84 FR 8069) announcing the release of additional data
underlying the FFS Adjuster Study, both on the CMS website and to those
organizations who established data use agreements (DUAs) with the CMS
Office of Enterprise Data Analytics (OEDA).\18\
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\18\ https://www.federalregister.gov/documents/2019/03/06/2019-04052/medicare-program-release-of-data-underlying-risk-adjustment-data-validation-provisions.
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On April 25, 2019, we posted updates to existing
documentation related to the study data, as well as additional data on
the CMS website.\19\
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\19\ https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medicare-Risk-Adjustment-Data-Validation-Program/Other-Content-Types/RADV-Docs/NPRM-4185-Provisional-Data-Release-CPI-FFSA-Coefficients.xlsx.
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On April 30, 2019, we issued a notice in the Federal
Register (84 FR 18215) granting an additional extension of the comment
period for the proposed RADV provisions until August 28, 2019. We also
announced that we would be releasing additional data underlying the FFS
Adjuster study, including data containing Protected Health Information
(PHI), to all parties who entered an applicable DUA with CMS and paid
the required fee.\20\
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\20\ https://www.cms.gov/research-statistics-data-and-systems/files-for-order/limiteddatasets/.
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On June 28, 2019, we issued a notice in the Federal
Register (84 FR 30983) \21\ that we replicated the FFS Adjuster Study
and published a summary of that replication as an addendum to the study
on the CMS website.\22\ The purpose of this replication was to allow us
to test our initial results and release a more complete set of
underlying data. (Certain intermediate data elements, not saved as part
of the implementation of the initial study, were preserved and
published in the addendum.) The
[[Page 6648]]
results of the replication were broadly consistent with the initial
implementation of the study. In addition, the addendum contained
further discussion of the study's assumptions and methodology. We also
released the programming language used to implement the replication of
the study, and a description of the technical requirements for use of
that programming language.
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\21\ https://www.federalregister.gov/documents/2019/06/28/2019-13891/medicare-and-medicaid-programs-risk-adjustment-data-validation.
\22\ https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medicare-Risk-Adjustment-Data-Validation-Program/Resources.html.
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In the October 21, 2021 Federal Register (86 FR 58245), we
issued a notice that provided a 1-year extension of the timeline for
publication of the final rule.\23\
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\23\ https://www.federalregister.gov/documents/2021/10/21/2021-22908/medicare-and-medicaid-programs-policy-and-technical-changes-to-the-medicare-advantage-medicare.
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As part of this extension, we explained our determination that we
were unable to meet the 3-year timeline for publication.\24\ Based on
extensive public comments received on the 2018 proposed rule and
subsequent FFS Adjuster study and related data, along with delays
resulting from the agency's focus on the COVID-19 public health
emergency, we determined that additional time was needed to address the
complex policy and operational issues that were raised. As such, we
extended the timeline to publish the final rule from November 1, 2021
to November 1, 2022.
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\24\ Section 1871(a)(3)(A) of the Act requires the Secretary to
``establish and publish a regular timeline for the publication of
final regulations based on the previous publication of a proposed
regulation or an interim final regulation.'' Section 1871(a)(3)(B)
of the Act provides that ``[s]uch timeline . . . shall not be longer
than 3 years except under exceptional circumstances.'' The Secretary
therefore may not ``establish'' a ``regular timeline'' for the
finalization of a proposal or interim final rule that exceeds three
years, absent exceptional circumstances. Section 1871(a)(3)(B) of
the Act authorizes the Secretary to ``vary such timeline''--that is,
to alter the ``regular timeline'' initially ``establish[ed]'' for
finalization--by publishing a timely notice in the Federal Register
with ``a brief explanation of the justification for such
variation.'' As we have said, ``[t]he Secretary may extend the
initial targeted publication date of the final regulation, if the
Secretary provides public notice including a brief explanation of
the justification for the variation no later than the regulation's
previously established proposed publication date.'' 69 FR 78443.
Under the plain text of the Act, no ``exceptional
circumstances'' are required for the Secretary to extend the initial
targeted publication date of the final regulation, but only ``a
brief explanation of the justification'' for doing so. The Secretary
has often extended such timelines without any reference to
``exceptional circumstances.'' (See 86 FR 50263; 85 FR 55385; 85 FR
52940; 85 FR 7; 79 FR 62356; 74 FR 8867; 72 FR 16794; 72 FR 13710.)
But the Secretary has also said that the Act ``permits an extension
of a published timeline under exceptional circumstances,'' 69 FR
78442, and has invoked ``exceptional circumstances'' in extending
such timelines, including in the notices published in this
rulemaking. For the reasons explained in this note, the Act has
never required exceptional circumstances for such extensions--though
exceptional circumstances have often been present, as they were
here, when such timelines have been extended.
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In the November 1, 2022 Federal Register (87 FR 65723), we
issued a notice that provided a 3-month extension of the timeline for
publication of the final rule.\25\ We explained that we were unable to
meet the November 1, 2022, timeline for publication of the previously
referenced RADV-audit related provisions. We explained that we
continued to have ongoing delays resulting from the agency's focus on
the COVID-19 public health emergency, and we determined that additional
time continued to be needed to address the complex policy and
operational issues that were raised. As such, we extended the timeline
to publish the final rule from November 1, 2022, to February 1, 2023.
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\25\ https://www.federalregister.gov/documents/2022/11/01/2022-23563/medicare-and-medicaid-programs-policy-and-technical-changes-to-the-medicare-advantage-medicare.
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We received approximately 154 timely pieces of correspondence in
response to the 2018 proposed rule and the subsequent notices and data
releases. Summaries of the public comments that respond to the RADV
provisions, and our responses to those public comments, are set forth
in the discussion that follows. Additional public comments outside of
the scope of the RADV proposed provisions were not considered and are
not addressed in this final rule.
III. Provisions of the RADV Final Rule
A. Extrapolation of RADV Audit Findings
1. Use of Extrapolation in the Medicare Program
Extrapolation, or the act of estimating a value (such an
overpayment amount for a Medicare provider) based on a statistically
valid sample of units (such as Medicare claims), has historically been
a standard part of auditing practice at CMS. There is significant
guidance, including case law and best practices from HHS and other
Federal agencies, stating that extrapolation may be utilized as a valid
part of calculating improper payments. In particular, courts have held
that sampling and extrapolation are a valid method of calculating
improper Medicare payments, so long as statistically valid methods are
used. See United States v. Lahey Clinic Hosp., Inc., 399 F.3d 1, 18
n.19 (1st Cir. 2005) (noting that ``sampling of similar claims and
extrapolation from the sample is a recognized method of proof'' for the
United States in an affirmative case seeking recovery under a common-
law theory). See also Ratanasen v. California Dep't of Health Servs.,
11 F.3d 1467, 1469-71 (9th Cir. 1993) (collecting cases in which
sampling and extrapolation have been approved in the Medicaid context,
and ``join[ing] other circuits in approving the use of sampling and
extrapolation as part of audits in connection with Medicare and other
similar programs''); Chaves Cnty. Home Health Serv. v. Sullivan, 931
F.2d 914, 917-23 (D.C. Cir. 1991). The authority to use sampling and
extrapolation in Medicare audits is grounded in our statutory and
regulatory authority to audit providers and recoup improper payments.
See Chaves, 931 F.2d at 919 (interpreting the Medicare statute to allow
for a ``sample adjudication procedure'' followed by extrapolation from
that sample, which ``is reasonable given the logistical imperatives
recognized by courts in other comparable circumstances'').
Sampling and extrapolation have been used to calculate improper
payments in Medicare FFS (Part A and Part B) for decades. CMS formally
approved of this technique in 1986 (HCFA Ruling 86-1), but Medicare
Administrative Contractors (MACs), which are responsible for
determining medical necessity and paying Medicare FFS claims, have been
using it ``at least since 1972.'' Chaves, 931 F.2d at 921; see id. at
913 (explaining that ``sample adjudication has been used in previous
instances involving post-payment review of `coverage determinations'
under Part A,'' and that HCFA Ruling 86-1 ``simply reiterated [the
agency's] belief that it had the latitude to employ sample audits on
post-payment review to efficiently recoup overpayments for non-covered
services''). In 1991, the United States Court of Appeals for the
District of Columbia Circuit, in Chaves, upheld the use of this audit
methodology against arguments that the Medicare statute required
individualized review of claims submitted by providers (Id. at 922).
The MMA imposed limits on the use of sampling and extrapolation in
Medicare payment decisions in the context of Part A and Part B, when a
settlement to resolve improper payments is not reached. Since 2003,
Medicare Part A and Part B extrapolation under section 1893(f)(3) of
the Act has been limited to instances in which the Secretary determines
either that ``there is a sustained or high level of payment error'' or
that ``documented educational intervention has failed to correct the
payment error.'' No similar limitation applies to the MA program.
[[Page 6649]]
As previously discussed, sampling and extrapolation is a generally
accepted audit technique in the Medicare context, and the Act does not
apply any limits to the use of extrapolation in the MA program.
Therefore, we believe that CMS has the authority to implement this
audit methodology in RADV audits for any case in which a RADV audit
identifies improper risk-adjusted payments. We also believe that this
is a reasonable approach to our RADV audits, given the sustained and
high level of risk adjustment payment error, as previously described.
2. Summary of Proposed Rule
In the 2018 proposed rule, CMS proposed to extrapolate contract-
level RADV audit findings using statistically valid random sampling
techniques. CMS proposed to extrapolate findings in PY 2011 and all
subsequent payment years, but specifically sought comment on how to
treat the audits for PYs 2011, 2012, and 2013. In the proposed rule, we
explained that we had conducted RADV audits for PYs 2011-2013 according
to the sampling and extrapolation methodology described in the 2012
methodology but that these audits were not yet finalized because we had
not yet issued the audit findings to the MAOs.\26\ For PYs 2011 through
2013, we estimated that audited MA contracts received $650 million in
improper payments.
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\26\ See 83 FR 55038.
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In the 2018 proposed rule, we stated that, given the amount of
improper payments identified under the MA program, interest in
determining an accurate recovery amount for each audited MA plan, and
importance of protecting the overall integrity of the program, we
believed that it was in the public interest for CMS to apply the RADV
payment error methodology(ies) adopted through this rulemaking to PY
2011 and all subsequent years. We stated that CMS would be acting in
compliance with the improper payment obligations under the Act (most
recently updated as part of the Payment Integrity Information Act of
2019 (PIIA)), as well as our fiduciary responsibility to recover funds
due to the Medicare Trust Funds. We also noted that our February 2012
publication put MAOs on notice that CMS expected to calculate a
contract-level payment error for PY 2011 and subsequent payments years
by extrapolating from its review of a statistically valid sample of
enrollees, and that MAOs have never been entitled to receive or retain
payments associated with HCCs that cannot be validated by medical
records.
We also proposed that MAOs would be required to remit extrapolated
recovery amounts from RADV audit findings through CMS' payment system,
the Medicare Advantage and Prescription Drug system (MARx), as offsets
to MA plans' monthly capitation payments. In the event that the
recovery amount exceeds the payment in one month, we proposed that the
recovery would be spread across adjustments for multiple months until
the full amount is recovered. We also proposed that CMS might likewise
require MAOs to remit such recovery amounts based upon audit findings
by the HHS-OIG.
We explained in the 2018 proposed rule that CMS is not required to
set forth the methodology for calculating an extrapolated payment error
through regulatory provisions. However, we explained that, in the
interest of transparency, we were choosing to inform MAOs about our
plans to use various sampling and extrapolation methodologies in RADV
audits, as CMS deems appropriate, through rulemaking.
In addition to codifying in regulation our existing authority to
use extrapolation techniques in the RADV context, we also used the 2018
proposed rule as a means to gather public feedback on sampling
methodologies that could be employed for purposes of extrapolation. We
explained that, in addition to the contract-level approach described in
the 2012 RADV Methodology, we have identified other potential
methodologies for sampling and extrapolation that are based on a
particular sub-cohort or sub-cohorts in a given payment year. For
example, a sub-cohort could be the enrollees for whom a particular HCC
or one of a related set of HCCs (such as the three diabetes HCCs) was
reported.
Table 1--Diabetes HCCs
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HCC category description HCC
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Diabetes with acute complications.............................. 17
Diabetes with chronic complications............................ 18
Diabetes without complication.................................. 19
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After choosing an MA contract and a sub-cohort or sub-cohorts to
audit, we would select a statistically significant sample of enrollees
in the sub-cohort or sub-cohorts. After reviewing these enrollees'
medical records that are submitted by the MAO, we would use statistical
extrapolation to calculate and recoup the improper payments made to the
audited MA contract for all enrollees in the sub-cohort or sub-cohorts
in that payment year.
We noted in the 2018 proposed rule that using a sub-cohort
methodology, such as one focused on enrollees with high-risk HCCs,
could allow us to use a much smaller sample size to calculate a
statistically valid extrapolated improper payment amount. This is
possible because, when selecting a sample from a smaller population
(that is, a sub-cohort of enrollees), one can still achieve an
acceptable level of statistical confidence with that smaller sample
size. This sub-cohort-based audit methodology would also allow us to
spread our audit resources across a wider range of MA contracts and
focus on cohorts of enrollees that raise programmatic concerns, while
also reducing operational burden on both CMS and the MAOs due to the
reduced sample size needed to calculate improper payments.
In the 2018 proposed rule, we invited comment on both the contract-
level audit methodology published in February 2012 and our proposal for
an extrapolated audit methodology based on sub-cohorts of enrollees. We
also sought comment on whether there are particular situations in which
one methodology may be preferable to the other. We emphasized that
neither proposed methodology was meant to displace our longstanding
authority to audit the medical records of particular enrollees who we
believe may be associated with improper payments or to use any
statistically valid audit methodology. We also stated that, if we
finalize one or more sampling and extrapolation methodologies through
this rulemaking, we would announce any future changes to that
methodology (or those methodologies) through the Health Plan Management
System (HPMS).
In addition, we stated that we may begin to conduct RADV audits for
PYs 2014 and 2015 before finalizing the policies in the proposed rule,
pursuant to our longstanding authority to review the medical records of
any MA enrollee and recoup improper payments identified. We also sought
comment on whether the use of sampling and extrapolation for certain
payment years would require the exercise of our statutory authority to
engage in retroactive rulemaking, as set out in section 1871(e)(1)(A)
of the Act, which authorizes retroactive application of rules where
``failure to apply the change would be contrary to the public
interest.''
We also discussed proposed changes to our RADV dispute and appeals
regulations in 42 CFR 422.311 to conform with the finalized RADV
provisions. Specifically, consistent with
[[Page 6650]]
our other proposed policies, we proposed to amend Sec. 422.311 by
adding language to clarify that recovery of improper payments from MAOs
will be conducted according to the Secretary's payment error
extrapolation and recovery methodologies, and that CMS will apply
extrapolation to RADV audits beginning with PY 2011. We also requested
comment on whether to explicitly expand the MAOs' RADV appeal rights,
such as by permitting appeal of the RADV payment error calculation
methodology used in a RADV audit, similar to practices in Medicare FFS.
A summary of the comments received and our responses follow.
3. Summary of Public Comments
Comment: Several commenters supported CMS' proposal to use
extrapolation in RADV audits, as well as our proposal to begin
extrapolation for PY 2011 audits. Commenters indicated that this is the
most effective way to address improper payments in MA.
Response: We thank commenters for their support. While we plan to
finalize our proposal to apply extrapolation to RADV audits, we are
making a change to the years in which to apply extrapolation to achieve
what we believe is an appropriate final policy that still takes into
consideration our obligation to address potentially significant
improper payments in the MA program. Extrapolation will now begin with
the PY 2018 RADV audits rather than PY 2011, as proposed. This change,
as further described in this section of this rule, is being made due to
our fiduciary duty to protect taxpayer dollars from overpayments,
certain operational considerations, and public comments on the
timeliness of RADV audits.
Comment: Several commenters opposed the use of extrapolation in
RADV audits. Some commenters questioned whether we had the statutory
authority to use sampling and extrapolation in RADV audits. These
commenters suggested that, because section 1893(f)(3) of the Act grants
CMS the authority to use sampling and extrapolation in certain
circumstances when conducting audits in Medicare Part A and Part B, CMS
cannot use those techniques in Part C audits without an equivalent
grant of statutory authority.
Several commenters challenged the statistical and methodological
validity of both the contract-level sampling and extrapolation
techniques described in the 2012 methodology, as well as an approach
based on sub-cohorts of enrollees. A commenter stated that it is more
difficult for plans to determine results from extrapolation in MA than
in Medicare FFS because RADV audits can include the review of multiple
medical records to validate one diagnosis from various providers with
``disparate methods of documentation.''
Some comments focused on the application of extrapolation beginning
in PY 2011. Several commenters asserted that increased liabilities of
MAOs from retroactive application of an extrapolated payment error
recovery would deter future participation by MAOs in the MA program and
reduce benefits to beneficiaries. Several commenters expressed concern
that extrapolation for past payment years will destabilize physician
care. Specifically, the concern is that providers participating in
risk-sharing contracts with MAOs that have not yet completed a final
settlement may be at risk for losses. The same commenters believe that
recovering improper payments when the audit methodology has been
revised several times is inequitable to the MAOs.
Response: We appreciate these comments and considered them when
finalizing the timing and content of these extrapolation policies. As
discussed previously, CMS has the authority to use sampling and
extrapolation in its RADV audits. Federal courts have held that
sampling and extrapolation are a valid method of calculating improper
Medicare payments, so long as statistically valid methods are used. The
MMA added section 1893(f)(3) of the Act, which specifically applies to
Medicare Part A and Part B and limits the use of extrapolation to
determine overpayment amounts for recoupment under certain
circumstances. This provision did not confer new authority to use
extrapolation, but limited our preexisting audit authority in Medicare
Part A and Part B. No similar limitation has been applied to audits in
Medicare Part C. However, CMS will continue to focus its RADV efforts
on MAOs identified as being at higher risk of improper payments.
In the implementation of this authority to use sampling and
extrapolation in RADV, CMS will employ statistical methods to determine
statistically valid sample sizes, accurately identify payment error,
and extrapolate to the universe of enrollees from which the sample is
selected. These statistically valid methods may include applying one or
more RADV audit methodologies for any given RADV audit. In addition,
while CMS views extrapolation as a statistically valid methodology for
RADV audits, the agency may, at times, use its discretion to not
utilize extrapolation in a particular instance. For example, there may
be unforeseen circumstances in which the statistical validity of the
sample is disturbed (such as the need to exclude a large number of
cases from the sample due to the loss of medical records in a natural
disaster) and extrapolation is no longer possible, despite the initial
intent to do so. There may be other limited instances in which CMS
seeks to collect overpayments associated only with enrollees in a given
sample, or wishes to perform only a probe sample of RADV reviews
without the use of a statistically valid sample and yet will seek to
recover any identified, non-extrapolated overpayments. The OIG may also
independently decide not to extrapolate for reasons outside the control
of CMS, and CMS will still recover those overpayments in accordance
with the provisions in this final rule. To account for this, we are
finalizing Sec. 422.311(a)(2) to read ``CMS may [emphasis added] apply
extrapolation to audits for payment year 2018 and subsequent payment
years,'' rather than ``CMS will apply extrapolation . . .'' as
proposed. This language is not intended to signal that it would be a
frequent occurrence to not extrapolate in PY 2018 and future audits;
rather, extrapolation is expected to be the standard practice for RADV
audits beginning in PY 2018.
As previously stated, we believe that it is in the best interest of
the Federal Government and our efforts to protect taxpayer dollars to
extrapolate in our RADV audits, given the substantial amount of
improper payments in MA and the fact that RADV is CMS' main corrective
action used to address the submission of inaccurate diagnosis data.
However, we also have decided not to extrapolate for PY 2011 through
2017 audits, as originally proposed, due to certain operational
considerations and public comments on the timeliness of RADV audits.
The reasoning for this decision is discussed in greater detail later in
this final rule.
In addition, we do not agree with the comment that RADV audits
include the review of multiple medical records with ``disparate methods
of documentation.'' We reemphasize that the policies we are finalizing
in this rule do not impose new documentation requirements on providers.
The core component of a RADV audit is ensuring that all diagnoses
reported to CMS are properly supported by medical record documentation.
CMS' existing regulatory documentation standards, 42 CFR 422.310(d)(1);
45 CFR 162.1002(c)(2) and (c)(3), including the RADV-specific authority
to validate risk
[[Page 6651]]
adjustment data through the review of a sample of medical records at
Sec. 422.310(e), remain unchanged under this final rule and are
described in current agency policy documents, including the Medicare
Managed Care Manual (with which MAOs agree, in their MA contracts, to
comply). MAOs are also already required to ensure that contracted
providers meet MA documentation requirements.
We respectfully disagree with commenters' assertions that
liabilities will increase. We are not imposing additional liabilities,
penalties or retroactive application of new requirements or policy. We
only seek to recover improper payments received by MAOs for HCCs that
are not substantiated by enrollees' medical records. We continue to
rely on existing program methods to establish auditing practices that
encourage proper payment recovery consistent with established audit
practices. We recognize that MAOs enter into agreements with providers,
including those with a risk-sharing component, and we encourage all
parties to those agreements to take steps to mitigate the submission of
diagnosis codes that are not properly supported in the medical record.
We emphasize that nothing in this rule changes the longstanding
principle that a diagnosis code that is not documented in a patient's
medical record is not a valid basis for CMS risk adjustment payments to
an MAO. Nor does this rule change the longstanding obligation of an
insurer to refund payments to CMS if it learns that a diagnosis lacks
support in the beneficiary's medical record.
Comment: Many comments were received on the proposed extrapolation
methodologies, mainly focused on our proposed sub-cohort approach. Some
commenters requested clarity on the sub-cohort methodology, while
others expressed support for this methodology with various suggestions
to improve it. Commenters questioned whether the proposed sub-cohort
methodology will replace the existing contract-level methodology, which
utilizes a general, non-targeted sampling methodology, and how CMS will
determine which HCC groups will be used in the identification of sub-
cohorts. A commenter requested that CMS confirm whether RADV will
consist of a single audit methodology or whether MAOs will be subject
to multiple audit methodologies.
Some commenters believe that applying a sub-cohort extrapolation
methodology of enrollees would produce inaccurate results in RADV
audits because of differences between plans with regard to size and
risk characteristics. For example, several commenters argued that plans
with a higher than average risk score are at increased risk for RADV
audit because high-risk enrollees are more likely to have more HCCs.
Other commenters believe that a small sample size, which CMS sees as a
benefit of a sub-cohort methodology, will result in inaccuracies.
Others commented that an extrapolation methodology based on sub-cohorts
of enrollees would violate the statutory mandate of ``actuarial
equivalence'' between payments made under MA and Medicare FFS because
it would generate recoveries based on random outcomes without regard to
specific characteristics of MA plans' diagnostic mix, enrollment size,
and risk scores. A commenter requested that, if CMS adopts a sub-cohort
extrapolation methodology, it uses a pilot period first before
implementing the program on a large scale and extrapolating results.
Other comments spoke to extrapolation methods more generally,
including the appropriate confidence interval, potential for plans of
certain sizes to be unduly chosen for RADV audits, and perceived
inability to assess potential liability for RADV audits already
performed if CMS abandons the extrapolation methodology set forth in
the 2012 methodology.
Other comments on our proposed extrapolation methodologies were
focused on the impact of underpayments. A commenter objected to the
RADV audit sampling methodology, arguing that it results in a purported
payment recovery bias against MAOs. The commenter believes the results
of the RADV audit sample are ``asymmetric,'' thus incorrectly
representing the improper payment rate. More specifically, the
commenter asserted that ``[t]hough there is no upper limit for how high
the payment recovery amount can be, there is no balancing negative
recovery amount.'' In other words, the commenter objected that MAOs
cannot receive a payment from CMS based on a RADV audit if, overall,
the risk scores should have been higher because, for instance, there
were more supported diagnoses that had not been submitted (that is more
under-coding) than unsupported diagnoses that had been submitted (that
is over-coding). Other commenters shared these concerns, as well as
voiced concern that RADV audit samples do not account for the reported
bias that exists for enrollees who have no diagnosis codes submitted
during the year but have existing documentation to support a diagnosis
that could have been submitted. The same commenters perceive the audit
methodology as being random and indiscriminate, believing that the
results will incorrectly estimate the risk profile of enrollees.
A commenter requested information related to the sampling
methodology used to select enrollees for the PY 2014 RADV audit.
Specifically, the commenter requested details on the development of the
regression model used to predict payment error and on the sampling
criteria from which the RADV audit currently extrapolates. This
commenter also contended that the PY 2014 methodology appears to
maximize the probability of selecting individuals with coding errors.
Response: As previously explained, extrapolation is an established
auditing practice and remains a valid method for addressing audit
recoveries. In this final rule, we are clarifying the scope of our
authority to strengthen the integrity of the MA program by identifying
improper payments. Our initiatives are designed to ensure fair and
accurate recovery efforts by focusing on the areas at highest risk of
improper payments. We will use statistically valid methodologies to
extrapolate improper payment findings to the universe of enrollees from
which a sample is selected. These statistically valid methodologies may
include applying one or more RADV audit methodologies for any given
RADV audit. As previously discussed, we may also determine that
extrapolation will not be applied in certain limited instances. We
emphasize that, in this final rule, we are not adopting either the
contract-level sampling and extrapolation technique described in the
2012 methodology or a specific extrapolated audit methodology based on
sub-cohorts of enrollees. Instead, for future RADV audits, CMS will
rely on any statistically valid method for sampling and extrapolation
that it determines to be well-suited to a particular audit. We
described the sub-cohort methodology in the 2018 proposed rule to
provide the industry with transparency on potential audit
methodologies. In addition, while not required, CMS will continue to
disclose our extrapolation methodology to MAOs through HPMS memos or
other appropriate means, providing MAOs with the information sufficient
to understand the means by which CMS extrapolated the improper payment
determination.
Any sampling and extrapolation methodologies adopted by CMS for
RADV audits will be focused on MAO contracts and enrollees' HCCs that,
through statistical modeling and/or data
[[Page 6652]]
analytics, are identified as being at highest risk for improper
payments. This is an appropriate approach to any Federal MA audit that
seeks to recoup taxpayer dollars that have been inappropriately paid to
MAOs for diagnoses that are not supported in the medical record. This
approach was also recommended by the GAO in a 2016 report titled
``Fundamental Improvements Needed in CMS's Effort to Recover
Substantial Amounts of Improper Payments.'' \27\ The GAO recommended
that CMS ``modify [its] selection of contracts for contract-level RADV
audits to focus on those contracts most likely to have high rates of
improper payments by taking actions such as the following: selecting
more contracts with the highest coding intensity scores; excluding
contracts with low coding intensity scores; selecting contracts with
high rates of unsupported diagnoses in prior contract-level RADV
audits; if a contract with a high rate of unsupported diagnoses is no
longer in operation, selecting a contract under the same MAO that
includes the service area of the prior contract; and selecting some
contracts with high enrollment that also have either high rates of
unsupported diagnoses in prior contract-level RADV audits or high
coding intensity scores.'' \28\
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\27\ GAO, at 26, https://www.gao.gov/assets/gao-16-76.pdf (April
2016).
\28\ Id.
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We also note that the purpose of RADV audits is to validate that
diagnoses submitted by MAOs for risk-adjusted payment are properly
supported by medical record documentation. See 42 CRF 422.310(e). RADV
audits are the main corrective action used to address the submission of
inaccurate diagnosis data. Occasionally, upon review of these medical
records, CMS will uncover ``additional'' diagnoses supported by the
medical records that were not submitted for payment by MAOs during the
data collection period for enrollees selected in the sample. Under
current contract-level RADV policy, when CMS uncovers these additional
diagnoses that map to CMS-HCCs during medical record review of audited
CMS-HCC(s), these newly-discovered diagnosis codes are used to
recalculate risk scores in certain circumstances, which may result in
an updated (reduced) improper payment calculation.
MAOs are required by CMS regulations (Sec. Sec. 422.503 and
422.504) and MAO contracts to establish compliance programs and
processes to ensure accurate diagnosis coding and the submission of
accurate diagnosis data. These processes should enable MAOs to identify
not only instances where diagnoses submitted for risk-adjustment
payment are not supported by the medical record, but also diagnoses
that may not have been submitted to CMS. MAOs can submit additional
diagnoses for risk-adjusted payment up until the final risk adjustment
data submission deadlines described at Sec. 422.310(g)(2)(ii). As with
overpayment recoveries under the Affordable Care Act and CMS's
Overpayment Rule, the purpose of RADV audits is not to reopen
submission deadlines and for CMS to make additional payments.\29\ RADV
audits identify overpayments after the final risk adjustment data
submission deadline.
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\29\ Section 6402 of the Affordable Care Act (Pub. L. 11-148)
established section 1128J(d) of the Act. Under the Part C and D
Overpayment Rule (79 FR 29844), which implemented section 6402 of
the Affordable Care Act, MAOs are required to correct overpayments
by self-reporting and returning payments associated with MAO
diagnosis codes not supported by medical record documentation.
Although MAOs are required to correct identified overpayments after
the final risk adjustment data submission deadline in order for CMS
to conduct reruns and recover the overpayments, MAOs are not
permitted to submit additional diagnoses for payment after the
submission deadline.
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Comment: Some comments were focused on the scope and number of
plans selected for RADV audit. A commenter objected to an increase in
the number of plans selected for the RADV audits. Another commenter
requested an explanation of how sample sizes will be determined for
Program of All-Inclusive Care for the Elderly (PACE) organizations,
most of which have fewer than 500 enrollees.
Response: As previously described, any extrapolation methodology
adopted by CMS for RADV audits will be focused on MAO contracts that,
through statistical modeling and/or data analytics, are identified as
being at highest risk for improper payments. Examples of MAO contracts
that may be deemed higher risk for the purposes of RADV audit selection
are discussed later in this section. This is also the best approach to
ensure that MAOs that do not show indications of being at high risk of
improper payments are not exposed to audit burden to the exclusion of
higher-risk plans. In addition, as noted previously, such an approach
was recommended by the GAO in its April 2016 report.\30\ CMS does not
currently subject PACE organizations to RADV audits and CMS' selection
methodology for each year will describe any adjustments made for PACE
or other low enrollment contracts.
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\30\ GAO, at 26, https://www.gao.gov/assets/gao-16-76.pdf (April
2016).
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Comment: Several commenters noted that implementing these proposed
policies would lead to more audit burden for providers because of an
increase in documentation standards for treating providers. For
example, commenters believe that this is a ``more stringent audit
expectation'' that will increase administrative burden at a time in
which there is already a physician shortage, thereby impacting
patients. Another commenter contended that our extrapolation
methodology should reflect that certain HCCs are more difficult to
substantiate in medical record documentation than others.
Response: RADV audits will not impose new documentation
requirements on health care providers and, therefore, we believe there
will be no additional audit impact on providers that contract with MAOs
to provide services to MA plan enrollees. As previously stated, nothing
in this rule changes the longstanding principle that a diagnosis code
that is not documented in a patient's medical record is not a valid
basis for CMS risk adjustment payments to an MAO. In addition, there is
a longstanding requirement under Sec. 422.310(e), in place since the
beginning of the MA program, that ``[MAOs] and their providers and
practitioners will be required to submit a sample of medical records
for the validation of risk adjustment data, as required by CMS,'' which
is unaffected by this final rule. This requirement is consistent with
longstanding requirements applicable to Medicare Part A and Part B
providers that they furnish sufficient information to support payment.
42 U.S.C. 1395(g) (Effective July 7, 2004) (``[No]. . . . payments
shall be made to any provider unless it has furnished such information
as the Secretary may request in order to determine the amounts due such
provider . . .''); Clinic Res. Mgmt. v. Burwell, 2015 WL 3932657, at *2
(S.D. Tex. June 26, 2015) (``The provider is responsible for
maintaining and submitting adequate information to substantiate medical
necessity and entitlement to payment.'').\31\
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\31\ Under section 1853(a)(3) of the Act, the Secretary must
require MAOs to submit data regarding inpatient hospital services
and other services, as well as other information as the Secretary
deems necessary to calculate MA risk adjustment payments. This
authority has been implemented at Sec. 422.310, which requires MAOs
to submit ``data necessary to characterize the context and purposes
of each item and service provided to a Medicare enrollee by a
provider, supplier, physician, or other practitioner.'' Sec.
422.310(b). MAOs must submit data that conforms to CMS' requirements
for data equivalent to Medicare FFS data, when appropriate, and to
all relevant national standards. The International Classification of
Diseases, Tenth Revision, Clinical Modification (ICD-10-CM)
Guidelines for Coding and Reporting is the existing national
standard. (See Sec. 422.310(d)(1); 45 CFR 162.1002(c)(2) and
(c)(3)). This is consistent with obligations imposed on hospitals
and providers in Medicare Parts A and B, who are required to furnish
proper documentation and comply with the ICD Guidelines. See, for
example, 42 U.S.C. 1395g and 1395n.
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[[Page 6653]]
Comment: A commenter contested CMS' proposal to recover contract-
level payment adjustments through a lump-sum reduction in the plans'
monthly payments through MARx. The commenter noted that, for example,
CMS currently makes retroactive, beneficiary-specific adjustments
related to miscellaneous corrections to beneficiaries' status (such as
eligibility, State and county of residence, date of death, etc.)
outside of the RADV process. The commenter requested that CMS seek only
beneficiary-level recoveries through RADV audits so as not to overlap
with these non-RADV recoveries.
Response: While we appreciate the commenter's consideration of the
other areas in which CMS may make adjustments to MA payments, we do not
believe that current and proposed RADV efforts overlap with non-RADV
adjustments. RADV audits only validate diagnoses associated with a
beneficiary's medical record documentation, not a beneficiary's
demographic characteristics. If an HCC cannot be validated with medical
records, MAOs are not entitled to the risk-adjustment payment
associated with that HCC.
Comment: Several commenters opposed the application of our
extrapolation methodology to past payment years claiming that, pursuant
to section 1853(b)(2) of the Act, this would be considered a
retroactive application of policy and CMS must disclose our RADV audit
methodology changes prior to any payment year RADV audit. Some
commenters also asserted that the application of this rule to past
payment years would alter the actuarial soundness of payments
previously received by MA contracts, as existing contracts relied on
the RADV audit methodology we announced in the 2012 RADV Methodology.
Other commenters also characterized this approach as contrary to the
Supreme Court's holding in Azar v. Allina Health Servs., 139 S. Ct.
1804, 204 L. Ed. 2d 139 (2019), which emphasized that a substantive
legal standard must go through a notice-and-comment process.
Response: First, as a fundamental concept, this policy does not
impose any new requirements on MAOs that could be construed as
retroactive. The 2012 RADV Methodology did not create a different
``documentation standard'' for MA plans than the standard that applies
to traditional Medicare providers, nor did we state that an FFS
Adjuster should set a permissible rate for the submission of erroneous
codes. There is only one documentation standard for diagnosis coding,
as discussed previously: proper medical record documentation is
required for any reported diagnosis code to be valid. That is the
consistent policy throughout the Medicare program (see previous
discussion).
The RADV auditing methodology has not fundamentally changed the
longstanding requirement that a diagnosis submitted to CMS by an MAO
for payment must be properly supported by medical record documentation.
See UnitedHealthcare Ins. Co. v. Becerra, 16 F.4th 867, 869, 877 (D.C.
Cir. August 13, 2021, reissued November 1, 2021), cert. denied, 142 S.
Ct. 2851 (U.S. June 21, 2022) (No. 21-1140). Rather, it only enforces
the well-established regulatory requirement that MA diagnoses be
validated under that longstanding documentation standard. (For
additional information, see Sec. 422.310(e); 83 FR 55037 (and
authorities cited therein).)
We also noted in the 2018 proposed rule that we may begin to
conduct RADV audits for additional payment years (specifically, 2014
and 2015) before this proposal is finalized, pursuant to our
longstanding authority to review the medical records of any MA enrollee
and recoup any improper payments identified.
Even if this methodology was determined to be a retroactive
application of policy, a position with which we do not agree, it is
still necessary to comply with statutory requirements and is in the
public interest for CMS to apply extrapolation to past payment years,
and, therefore, is authorized under the Act. CMS has the authority, in
accordance with section 1871(e)(1)(A) of the Act, to apply retroactive
changes in regulations, manual instructions, interpretative rules,
statements of policy, or guidelines of general applicability to items
and services furnished before the effective date of the change, if the
Secretary determines that ``such retroactive application is necessary
to comply with statutory requirements or failure to apply the change
would be contrary to the public interest.'' We believe that recovering
extrapolated improper amounts is necessary to comply with statutory
requirements and advances the public interest by protecting the overall
integrity of the MA program. We have a statutory mandate under the PIIA
to reduce improper payments and a fiduciary responsibility to recover
funds due and owed to the Medicare Trust Funds.
As previously discussed, HHS and the GAO have identified a
significant volume of improper payments in the MA program,\32\ and RADV
audits are the main way CMS ensures payment accuracy to MAOs. As
further discussed in the Regulatory Impact Analysis section of this
final rule, CMS estimates extrapolated improper payment recoveries of
approximately $479 million per audit year beginning with the PY 2018
audit. We also believe that there will be an additional sentinel effect
of RADV audits on the improper payment rate as MAOs improve their
processes to report only those diagnoses that meet CMS requirements for
risk adjustment payment.
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\32\ For example, the FY 2021 HHS Agency Financial Report, pg.
211, https://www.hhs.gov/sites/default/files/fy-2021-hhs-agency-financial-report.pdf, states that Part C Improper Payment
Measurement (IPM) estimated approximately $15 billion in
overpayments for calendar year 2019 risk-adjusted payments to MAOs.
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In addition, as discussed previously, RADV audits will not impose
new documentation requirements on health care providers. The core
component of a RADV audit is ensuring that all diagnoses are properly
supported by medical records. We only seek to recover improper payments
received by MAOs for HCCs that are not substantiated by enrollees'
medical records. MAOs have never been entitled to receive or retain
payments associated with HCCs that cannot be validated by medical
records. Therefore, applying the rule under the public interest
exception in section 1871(e)(1)(A) of the Act would not upset any
settled or reasonable reliance interests. This all serves the public
interest by reducing the improper allocation of taxpayer dollars that
can otherwise be used for other purposes within the Federal Government,
including solvency of the Medicare Trust Funds. Thus, applying the rule
retroactively is necessary to comply with statutory requirements and in
the public interest within the meaning of section 1871(e)(1)(A) of the
Act.
Comment: Several comments provided input on the potential
promulgation of rules permitting administrative appeals of RADV audit
methodology. A commenter opined that such procedures were unnecessary
because stakeholders had an opportunity to participate in the
development of our methodology through the notice-and-comment
[[Page 6654]]
rulemaking process, and that permitting challenges to our methodology
in the administrative appeals context would generate ``numerous
unnecessary practical problems'' for us. Another commenter supported
the expansion of RADV audit appeals to allow MAOs to demonstrate that
alternative methodologies would be more accurate, and to show that
cohorts sampled for RADV audits might not be representative of the
contract population.
Response: We appreciate the commenters' input and concerns. We do
not believe it would be appropriate to expand our appeals regulations
to allow MAOs to appeal the RADV audit methodology, as revisions to the
appeal regulations were not part of our proposed rule and stakeholders
did not have the opportunity to provide comments on specific proposed
policies. As such, MAOs will continue to be able to use the RADV
appeals process currently set forth in Sec. 422.311. Any future
changes to our appeals process would occur through separate notice and
comment rulemaking.
Comment: Several comments outside the scope of the proposed rule
were received, including those related to the RADV program and other
CMS programs. Out-of-scope comments pertaining to the RADV program
included recommendations for changes to RADV documentation requirements
and procedures; requests that CMS prohibit MAOs from auditing providers
for patient records within the RADV cohort during the course of RADV
audit; a request to expand the hardship exception to account for delays
in acquiring medical records resulting from providers who are
``traveling, sick, or deceased;'' a request to implement a schedule
whereby RADV audits would be performed within 2 years of the applicable
dates of service; challenges in collecting medical records created
several years before the RADV audit; and requests for clarification of
how CMS treats ``non-unique'' diagnosis codes during RADV audits when,
even if one code is in error, there may be one or more diagnoses that
substantiate the same HCC.
Other out-of-scope comments pertained to the RADV dispute and
appeals processes. These comments included requests for CMS to provide
MAOs with more time to appeal a RADV audit finding; expand MAOs' appeal
rights by removing the current limitation cited in Sec.
422.311(c)(2)(iv) that allows MAOs, for each audited HCC, to appeal
only one medical record that has undergone a RADV review; use an
independent third party to reconsider disputed HCCs and/or payment
error calculations; allow additional flexibility in disputing medical
record interpretation during the appeals process and for MAOs to
supplement medical records with documents that could not be obtained at
the time of the audit; and allow MAOs to file complaints of
underpayments by CMS.
Other comments were received unrelated to RADV, such as requests to
make burden-reducing changes to the Medicare Part C Recovery Audit
program requirements and requests for payment parity between MA and
Medicare FFS.
Response: While we appreciate this feedback, these comments do not
directly relate to the proposed changes to the RADV audit program,
which is focused on our policies related to the use of extrapolation
and the non-application of an FFS Adjuster, and are therefore outside
of the scope of this final rule. Updated resources on RADV rules and
methodologies are available on the CMS website at https://www.cms.gov/Research-Statistics-Data-andSystems/Monitoring-Programs/Medicare-Risk-Adjustment-Data-Validation-Program/Resources. We also encourage
stakeholders to engage with CMS throughout the course of an audit cycle
and to provide feedback on programmatic improvements that can be
considered outside of this rulemaking process.
4. Summary of Final Policies
After consideration of public comments, we are finalizing the use
of extrapolation under the contract-level RADV program. However, we are
modifying our proposed policy to extrapolate beginning in PY 2011. We
are instead finalizing our ability to extrapolate beginning in PY 2018
due to considerations of appropriateness in light of public comments
and certain operational concerns, as well as our obligations to protect
the sustainability of the Medicare program. We are announcing, through
this final rule, our interpretation of our statutory and regulatory
authority as authorizing the use of sampling and extrapolation in RADV
audits. We are not adopting any particular statistical sampling
methodology in this final rule. As previously noted, CMS will use
statistically valid methods for sampling and extrapolation that we
determine to be well-suited to a particular RADV audit.
After reviewing comments and considering the matter further, we
also believe that the use of sampling and extrapolation to calculate
audit recoveries would not be retroactive within the requirements of
section 1871(e)(1)(A) of the Act. The use of sampling and extrapolation
for prior payment years is not retroactive because the substantive
requirement of proper medical record documentation of all diagnoses
submitted for payment remains unchanged, whether we calculate audit
recoveries on an enrollee-by-enrollee basis or use a statistically
valid sample of enrollees to extrapolate. Enrollee-level audit
recoveries and extrapolated audit recoveries are simply two different
ways of enforcing the same medical record documentation requirement
under Sec. 422.310(e).
While we believe that the use of sampling and extrapolation for
prior payment years is not a retroactive application of policy, even if
it was somehow interpreted as retroactive, we still believe that
recovering extrapolated improper amounts is necessary to comply with
statutory requirements and advances the public interest by protecting
the overall integrity of the MA program. We have a statutory mandate
under the PIIA to reduce improper payments and a fiduciary
responsibility to recover funds due and owed to the Medicare Trust
Funds. The RADV program was developed as one of the primary methods to
address CMS' responsibility to recover improper payments in the MA
program.
In addition, although we stated in the proposed rule that we
intended to apply any finalized RADV payment error methodology or
methodologies to PY 2011 and all subsequent years, we have decided to
begin to exercise our authority to collect extrapolated recoveries with
the PY 2018 RADV audit. Based on our review of a number of factors, CMS
determined it is in the overall best interests of the RADV program and
ultimately the Part C program itself to limit all RADV improper payment
recoveries for PYs 2011 through 2017 to enrollee-level adjustments for
those enrollees sampled in the payment validation audits. Our reasoning
for this decision follows.
First, after careful consideration of the comments received, we
believe that the most appropriate decision is to begin extrapolation
with the PY 2018 audits. As a result, CMS will not collect extrapolated
overpayments identified as a result of either CMS RADV or HHS-OIG
audits for payment years prior to PY 2018, but will collect enrollee-
level overpayments identified in those audits. As previously described,
we believe that beginning extrapolation for PY 2018 RADV audits
represents an appropriate policy because it recognizes our
[[Page 6655]]
fiduciary duty to protect taxpayer dollars from overpayments and
preserves our ability to collect on significant (extrapolated) amounts
of overpayments made to plans beginning in PY 2018. This final rule
will also allow CMS to focus on conducting future RADV audits as soon
as practicable after an MAO payment year concludes, which was the topic
of significant public comment to the proposed rule.
Lastly, we have determined that it is in the best interest of all
parties to ensure that the contract-level RADV appeals process, which
is also outlined in regulation, is able to successfully process all
RADV appeals. By not using an extrapolation methodology prior to PY
2018, we expect to better control the total number of active appeals
that are submitted in the first few years following finalization of
this rule, which will alleviate burden on MAOs and CMS. This includes
appeals that result from CMS RADV audits, as well as CMS recoveries
made based upon improper payments identified in HHS-OIG audits of MAOs.
When this rule is finalized, we will begin issuing the enrollee-level
audit findings from the CMS RADV audits that have been completed (that
is, CMS RADV audits for PYs 2011 through 2013, followed eventually by
PY 2014 and PY 2015 audits), as well as recovering enrollee-level
improper payments identified in HHS-OIG audits. The release of these
results in quick succession could result in an unprecedented influx of
MAO appeals into the RADV appeals process. HHS' past experience with
appeals backlogs, particularly for Medicare FFS claims, has
demonstrated that proactive steps to avoid large volumes within an
abbreviated period of time is key to ensuring the timely processing of
all appeals. Depending upon the number of RADV audit appeals filed by
plans, there may be a possible appeals backlog that could lead to
significant burden on MAOs and CMS. It can also divert government
resources away from other important activities that could also reduce
MAO burden, such as finding ways that RADV audits can be performed in
quicker succession to the conclusion of any payment year reconciliation
period, resulting in future RADV audits being more contemporaneous,
which was the topic of significant public comments to the proposed
rule.
At the same time, this finalized policy also recognizes our
fiduciary duty to protect taxpayer dollars from overpayments and
preserves our ability to collect on significant (extrapolated) amounts
of overpayments made to plans beginning in PY 2018. We understand that
this decision means that certain amounts of improper payments will be
left uncollected in those earlier payment years (PYs 2011 through 2017)
because we will only be collecting the non-extrapolated improper
payments identified for PYs 2011 through 2017 and not the extrapolated
overpayments that we will be collecting for PY 2018 and subsequent
payment years. However, for the reasons previously described, we
believe that the overall long-term success of the RADV program and
ultimately the Part C program requires us to consider several issues
and balance the collection of extrapolated improper payments with the
practical realities of the current RADV program.
We are finalizing our RADV regulations as proposed, with the
exception of a change to the payment year in which extrapolation will
begin. Specifically, we are--
Revising Sec. 422.300 to include ``collection of improper
payments;''
Amending Sec. 422.310(e) to announce that extrapolation
may be applied in RADV audits for PY 2018 forward and by adding a
requirement for MAOs to remit improper payments based on RADV audits in
accordance with a manner specified by CMS; \33\ and
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\33\ See discussion regarding the use of ``may'' in Sec.
422.310(e). This language is not intended to signal that it would be
a frequent occurrence to not extrapolate in PY 2018 and future
audits; rather, extrapolation is expected to be the standard
practice for RADV audits beginning in PY 2018. This will allow CMS
with flexibility to not extrapolate in certain limited instances the
Agency determines to be appropriate.
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Amending Sec. 422.311 by clarifying that recovery of
improper payments from MAOs will be conducted according to the
Secretary's payment error extrapolation and recovery methodologies and
that CMS may apply extrapolation to RADV audits for PY 2018 and
subsequent payment years.
While we appreciate the comments received as to potential
expansions of MAO appeals rights, we are not finalizing any other
changes to the RADV appeals process as part of this final rule because
no specific appeals-related policies were proposed.
B. Fee-For-Service Adjuster
1. Description of an FFS Adjuster
As previously described, risk adjustment ensures that MAOs are paid
appropriately for their plan enrollees, and section 1853(a)(1)(C) of
the Act requires that we calculate risk-adjusted payments to MAOs based
on specific criteria, such as age, disability status, gender,
institutional status, and health status. As discussed earlier, MAOs'
payments are calculated using the CMS-HCC risk adjustment model, which
is published each time it is updated (see section 1853(b) of the
Act).\34\ Additionally, an MAO may only report a diagnosis, and claim
the associated payment, when that diagnosis is properly supported by
the beneficiary's medical records. Medical records properly support a
reported diagnosis when they comply with all CMS data and documentation
requirements, which are described in current agency policy documents,
including Chapter 7 of the Medicare Managed Care Manual.\35\ Plans are
also required to submit a sample of medical records for the validation
of this risk adjustment data (see 42 CFR 422.310(e)).
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\34\ https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Announcements-and-Documents.
\35\ https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/mc86c07.pdf.
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Some MAOs have suggested that CMS cannot lawfully enforce the
requirement of medical record documentation for diagnosis codes while
making payments at the published rates. These MAOs argue that there is
a difference in auditing standards between Medicare FFS and MA
diagnosis data. In contrast to the MAO-submitted diagnosis data, these
MAOs claim that Medicare FFS data is ``unaudited'' by CMS and
presumably contains erroneous diagnosis codes not properly supported by
beneficiaries' medical records. As a result, they argue, the Medicare
FFS data used to calculate MAO payments will understate the cost of
treating various conditions. To address the presence of erroneous
diagnoses in the FFS claims data used to calibrate the MA payment
model, MAOs argue that CMS must raise payment rates to MAOs or relax
the documentation standard that CMS applies to reported medical
diagnoses to ensure accurate payments. MAOs refer to this concept of a
proposed adjustment to the payment rates and/or documentation standard
for MAOs as an ``FFS Adjuster.'' These MAOs ground their arguments in
section 1853(a)(1)(C)(i) of the Act, which requires the Secretary to
adjust payments to MAOs for demographic and health related risk factors
so as to ensure ``actuarial equivalence.'' According to these MAOs, an
FFS Adjuster would either adjust payment rates (by raising them) or
adjust documentation standards (by loosening them) to resolve the
alleged incompatibility between the current rates and current
documentation standards. In the 2012 methodology, using the term
somewhat differently,
[[Page 6656]]
CMS said that it would ``apply a Fee-for-Service Adjuster (FFS
Adjuster) amount as an offset to the preliminary recovery amount''
calculated for RADV audits under that methodology.
2. Summary of 2018 Proposed Rule
In the 2018 proposed rule, we proposed not to include the FFS
Adjuster described in the 2012 methodology in any final RADV payment
error methodology. We stated that a study that we conducted found that
errors in Medicare FFS claims data do not lead to systematic payment
error in the MA program and that, even if there was evidence of
systematic payment error, it would be inequitable to only correct
payment errors made to audited contracts. We sought comment on our
proposal not to use an FFS Adjuster. We also sought comment in our June
28, 2019 Federal Register notice and request for additional comment (84
FR 30983) regarding how the statutory minimum levels of the coding
pattern adjustment set at section 1853(a)(1)(C)(ii) of the Act bear on
the issue of whether or not to apply an FFS Adjuster.
3. Summary of Public Comments
We received numerous comments regarding our proposal to not include
an FFS Adjuster in RADV.
Comment: Several commenters expressed support for CMS' proposal not
to apply an FFS Adjuster, including the Medicare Payment Advisory
Commission (MedPAC).\36\ These commenters discussed the study results
demonstrating that errors in FFS Medicare claims data do not
systematically bias MA risk scores, and said that if such bias existed,
applying an FFS Adjuster to RADV would not be the appropriate remedy to
address that bias because only a small number of MA plans undergo RADV
audits each year. These commenters further asserted that any potential
bias from undocumented FFS diagnoses is negligible and that the
application of an FFS Adjuster would require significant effort for
negligible benefit.
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\36\ https://www.medpac.gov/wp-content/uploads/import_data/scrape_files/docs/default-source/comment-letters/08122019_medpac_ma_radv_comment_v3_sec.pdf.
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Response: We thank these commenters for their support of not
applying an FFS Adjuster to the RADV methodology. We agree with these
comments for the reasons described throughout this final rule.
Comment: Some commenters contended that an FFS Adjuster is required
to ensure ``actuarial equivalence'' between payments to MA plans and
payments under the Medicare FFS program. Some commenters also contended
that the ``same methodology'' provision of section 1853(b)(4)(D) of the
Act requires the application of an FFS Adjuster in RADV. Other
commenters argued that CMS needs to apply an FFS Adjuster to comply
with the district court's holding in UnitedHealthCare Insurance Co. v.
Azar, 330 F. Supp. 3d 173 (D.D.C. 2018), rev'd sub nom.
UnitedHealthcare Insurance Co. v. Becerra, 16 F.4th 867 (D.C. Cir.
August 13, 2021, reissued November 1, 2021), cert. denied, 142 S. Ct.
2851 (U.S. June 21, 2022) (No. 21-1140). A commenter requested that CMS
suspend ongoing RADV audits and not begin any new RADV audits until an
FFS Adjuster is developed for use in RADV audits and in MAOs'
calculations of improper payments.
Response: As a general matter, we believe that it is in the best
interest of the Federal Government and taxpayers for CMS to continue
RADV audits for the purpose of addressing the high dollar amounts of
improper payments, as well as to employ a RADV methodology that does
not include the application of an FFS Adjuster. Further, the
``actuarial equivalence'' requirement under section 1853(a)(1)(C) of
the Act and ``same methodology'' provision under section 1853(b)(4)(D)
of the Act do not require the use of an FFS Adjuster. First, as
described by the D.C. Circuit, these provisions do not apply to the
obligation to return improper payments for MAO diagnosis codes that are
unsupported by medical records. Although the D.C. Circuit did not
address the RADV audit context in its decision in UnitedHealthcare,
this position is consistent with the D.C. Circuit's reasoning in that
case. (See UnitedHealthcare, 16 F.4th at 869, 891-92.) Second, it would
be unreasonable to interpret the Act as requiring a minimum reduction
in payments in one provision (the coding pattern provision), while at
the same time prohibiting CMS in an adjacent provision (the actuarial
equivalence provision) from enforcing those longstanding documentation
requirements (by requiring an offset to the recovery amount calculated
for CMS audits). (Section 1853(a)(1)(C)(ii) of the Act requires a
minimum coding pattern adjustment to reduce the risk scores of all MA
beneficiaries, and therefore, MA payment rates. Such a minimum coding
pattern adjustment accounts for differences in coding patterns between
MA and Medicare FFS, given that MAOs have a greater incentive than FFS
providers to report diagnoses.) These points are further explained
later in this section.
The first basis for our decision not to apply an FFS Adjuster is
because we believe that the actuarial equivalence provision of the
statute applies only to how CMS risk adjusts the payments it makes to
MAOs, and not to the obligation to return improper payments for
diagnosis codes submitted by MAOs to CMS lacking medical record
support. This position is consistent with the D.C. Circuit's decision
in UnitedHealthcare. There, a group of MAOs challenged the Secretary's
Part C Overpayment Rule (the ``Overpayment Rule'') (79 FR 29844), which
implemented section 6402 of the Affordable Care Act and required MAOs
to self-report and return payments associated with MAO diagnosis codes
not supported by medical record documentation. The district court
invalidated the Overpayment Rule. UnitedHealthcare, 330 F. Supp. 3d at
192.
However, the D.C. Circuit reversed the district court, holding that
the actuarial equivalence provision applies only to how CMS risk
adjusts the payments it makes to MAOs, and not to the obligation of
MAOs to return improper payments for diagnosis codes, submitted by MAOs
to CMS, lacking medical record support. (See UnitedHealthcare, 16 F.4th
at 883-887.) The D.C. Circuit also held that even if the actuarial
equivalence provision applied, plaintiffs' claims would still fail
because they did not meet their burden in showing, either through
empirical evidence or persuasive logic, that application of the
Overpayment Rule would lead to systematic underpayment of MAOs. (Id. at
887 through 891.)
While the D.C. Circuit decision pertained only to the Overpayment
Rule and declined to address RADV audits, its reasoning applies just as
strongly in the RADV context and supports our conclusion that an FFS
Adjuster is not appropriate in a RADV audit. ``The role of the
actuarial-equivalence provision is to require CMS to model a
demographically and medically analogous beneficiary population in
traditional Medicare to determine the prospective lump-sum payments to
[MAOs].'' (Id. at 870.) The RADV program, like the Overpayment Rule,
applies after the fact to require MAOs to refund any payment to which
they are not entitled, based on diagnoses that lack support in the
medical record. The purpose of RADV audits is to recover payments that
were made improperly based on diagnoses not supported by medical record
documentation. If a payment is made to an MAO based on a diagnosis code
not supported by
[[Page 6657]]
medical record documentation, the entire payment for that code is in
error and should be recovered in full because the payment standard has
not been met. RADV audits only address issues relating to diagnoses
that are not supported by valid medical record documentation.
Comment: Several commenters expressed concern that our proposal to
extrapolate without applying an FFS Adjuster to payment recoveries
achieved through RADV audits will overlap with coding pattern
adjustments or create a double-recovery by CMS.
Response: Section 1853(a)(1)(C)(ii) of the Act requires the
implementation of a minimum coding pattern adjustment to reduce risk
scores of all MA beneficiaries, and therefore MA payment rates. This
minimum coding pattern adjustment accounts for differences in coding
patterns between MA and Medicare FFS, given that MAOs have a greater
incentive than FFS providers to report diagnoses. To meet this
requirement, each year, CMS has implemented an adjustment to offset the
effects on MA risk scores of higher levels of coding patterns in MA
relative to FFS. (See section 1853(a)(1)(C)(ii) of the Act.) Under
section 1853(a)(1)(C)(ii)(III) of the Act, the minimum adjustment
factor for 2019 and each subsequent year is 5.90 percent. CMS has, each
year, implemented the minimum coding pattern adjustment reduction
required by statute.
As CMS has explained in its annual MA advance notices and rate
announcements, the coding pattern adjustment, unlike RADV, is not
intended to address unsupported or inaccurate codes reported by MAOs in
particular instances but only the general practice, relative to
Medicare FFS, of reporting codes with greater intensity, including
codes that are nonetheless accurate.\37\ Contrary to some commenters'
assertions, the coding pattern adjustment provision of the statute
actually supports our decision not to apply an FFS Adjuster, and we
rely on that conclusion here as a second basis for our decision not to
apply an FFS Adjuster. We briefly review the history of that provision:
---------------------------------------------------------------------------
\37\ Announcement of Calendar Year (CY) 2011 Medicare Advantage
Capitation Rates and Medicare Advantage and Part D Payment Policies
and Final Call Letter at 19 (April 5, 2010); see also Announcement
of Calendar Year (CY) 2017 Medicare Advantage Capitation Rates and
Medicare Advantage and Part D Payment Policies and Final Call Letter
at 54 (April 4, 2016); Announcement of Calendar Year (CY) 2012
Medicare Advantage Capitation Rates and Medicare Advantage and Part
D Payment Policies and Final Call Letter at 37-38 (April 4, 2011).
---------------------------------------------------------------------------
The coding pattern adjustment was enacted as part of the
Deficit Reduction Act of 2005. (Pub. L. 109-171 (February 8, 2006),
codified at 42 U.S.C. 1395w-23(a)(1)(C)(ii)(I) and (II).)
The Health Care and Education Reconciliation Act of 2010
(Pub. L. 111-152), section 1853(a)(1)(C)(ii) of the Act was amended to
require that the adjustment be at least 4.71 percent in 2014, rising
annually to at least 5.7 percent in 2019. (Pub. L. 111-152, tit. I,
subtit. B, section 1102(e), 124 Stat. 1046.) (For payment years 2010 to
2013, CMS applied a 3.41 percent adjustment.\38\)
---------------------------------------------------------------------------
\38\ Announcement of Calendar Year (CY) 2010 Medicare Advantage
Capitation Rates and Medicare Advantage and Part D Payment Policies
at 19-29 (April 6, 2009).
---------------------------------------------------------------------------
Section 1853(a)(1)(C)(ii)(III) of the Act was subsequently
amended again in the American Taxpayer Relief Act of 2012 to require
the Secretary to make a reduction of at least 4.91 percent in 2014,
rising to at least 5.9 percent by 2019. (Pub. L. 112-240, tit. VI,
subtit. C, section 639, 126 Stat. 2357.)
CMS audits reinforce longstanding documentation requirements. We
believe it would be unreasonable to interpret the Act as requiring a
minimum reduction in payments in one provision (the coding pattern
provision), while at the same time prohibiting CMS in an adjacent
provision (the actuarial equivalence provision) from enforcing those
longstanding documentation requirements (by requiring an offset to the
recovery amount calculated for CMS audits). To the contrary, because
the Act requires CMS to reduce payments to MAOs by at least a specific
minimum percentage, the only reasonable interpretation of the Act is
that CMS would pay MAOs at those reduced rates, under the existing
payment model,\39\ and enforce the longstanding documentation
requirements through CMS' audits.
---------------------------------------------------------------------------
\39\ Any changes to the CMS-HCC payment model are published in
the annual payment notice.
---------------------------------------------------------------------------
Comment: Several comments disputed our suggestion that addressing
any diagnosis error in FFS Medicare claims through a RADV FFS Adjuster
would introduce inequities between plans that are audited and plans
that are not audited. Specifically, commenters discussed that not
applying an FFS Adjuster would be a disadvantage to the MA plans
selected for RADV audits because the audited plans are held to a
higher, inappropriate standard of medical documentation than unaudited
plans.
Response: As we stated in the proposed rule, the purpose of RADV
audits is to recover improper payments resulting from diagnoses that
are not supported in the medical record documentation, which is a
longstanding documentation standard that applies to all plans equally
and regardless of whether the plan is subject to a RADV audit. The
objective of an audit is to promote fair and impartial recovery of
improper payments due to insufficient documentation in accordance with
regulations. As we stated in the proposed rule, even if systematic
error exists, it would be inequitable to correct such errors in the
payments made only to audited plans through the application of an FFS
Adjuster. We also do not intend for this conclusion to suggest that we
believe an FFS Adjuster is appropriate or necessary outside of the RADV
context.
Our position is consistent with the conclusion of the D.C. Circuit,
which is that the actuarial-equivalence requirement is not an
``entitle[ment] . . . to a precise payment amount'' for a Medicare
Advantage insurer, but only ``an instruction to the Secretary regarding
the design of the risk adjustment model as a whole . . . describ[ing]
the type of `payment amount[s]' that the risk adjustment model should
produce''; ``[i]t does not directly govern how CMS evaluates the
validity of diagnoses or defines `overpayment.' '' (UnitedHealthcare,
16 F.4th at 885-86).
Comment: Several commenters asserted that moving forward without an
FFS Adjuster would render the RADV auditing requirements flawed,
unclear, stringent and unrealistic, and increase the burden placed on
providers to ensure accuracy as a result. Specifically, commenters
believe this ``more stringent audit expectation'' during a physician
shortage would not serve the public interest and would be detrimental
to the MA program. A commenter argued that increased auditing
requirements for MA providers would be contrary to CMS' other efforts
focused on reducing unnecessary provider burden. Other commenters also
noted burden for patients, while others believe that this policy will
have a disproportionate impact on smaller, not-for-profit special needs
plans with fewer resources to pay audit recoveries.
Response: This final rule does not impose a new documentation
standard on MA providers, nor is there a distinction in the
documentation standards between the MA and FFS Medicare programs.
Section 1815(a) of the Act (Medicare Part A) states that ``no such
payments shall be made to any
[[Page 6658]]
provider unless it has furnished such information as the Secretary may
request in order to determine the amounts due such provider under this
part for the period with respect to which the amounts are being paid or
any prior period.'' Additionally, Section 1833(e) of the Act (Medicare
Part B) states that ``[n]o payment shall be made to any provider of
services or other person under this part unless there has been
furnished such information as may be necessary in order to determine
the amounts due such provider or other person under this part for the
period with respect to which the amounts are being paid or for any
prior period.'' Section 1172 of the Health Insurance Portability and
Accountability Act (HIPAA) (Pub. L. 104-191) also requires both
providers and health plans to use standard content, formats, and coding
for health care transactions. In addition, the Secretary has adopted
various organizations' formats and code sets, including the ICD-10 and
the ICD Guidelines, which is the national standard for both FFS and MA.
See 45 CFR 162.1002. CMS has always required proper medical record
documentation in order for any reported diagnosis code or claim to be
valid. (See, for example, Becerra, 16 F. 4th at 869 (``[n]either
Congress nor CMS has ever treated an unsupported diagnosis for a
beneficiary as valid grounds for payment to a Medicare Advantage
insurer'').) That is the consistent policy throughout the Medicare
program, including MA and FFS.\40\ (See 42 CFR 422.310 (``MA
organizations must submit data that conform to CMS' requirements for
data equivalent to Medicare fee-for-service data, when appropriate, and
to all relevant national standards.'').) As such, we do not believe
that RADV audits impose any new level of burden on providers or violate
any initiatives to reduce that burden.
---------------------------------------------------------------------------
\40\ FFS Medicare claims are subject to error correction and
payment adjustment when they are based on diagnosis codes not
supported by the medical record. See Medicare Program Integrity
Manual sections 3.3.1.1, 3.3.2.1, 3.6.2.4, 6.5.2, 6.5.3., https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/internet-Only-Manuals-IOMs-Items/CMS019033.
---------------------------------------------------------------------------
This rule, rather than the 2012 methodology, will govern CMS'
conduct of RADV audits. Nonetheless, we did not intend the 2012
methodology to suggest that contract-level RADV audits create a
different ``documentation standard'' for MAOs than the standard that
applies to traditional Medicare providers, or that any FFS Adjuster
should set a permissible rate for the submission of invalid diagnosis
codes. After a lengthy consideration of these issues, and more than a
decade of additional experience with the Medicare Advantage program, we
have decided not to apply an FFS Adjuster in RADV audits because: (1)
we believe, consistent with the D.C. Circuit's decision in
UnitedHealthcare, that the actuarial equivalence provision of the
statute applies only to how CMS risk adjusts the payments it makes to
MAOs and not to the obligation of MAOs to return improper payments
(that is, payments for unsupported diagnosis codes); and (2) it would
not be reasonable to read the Act as requiring a reduction in payments
to MAOs by a statutorily-set minimum adjustment in the coding pattern
adjustment, while at the same time prohibiting CMS from enforcing
longstanding documentation requirements by requiring an offset to the
recovery amounts calculated for CMS audits.
Comment: A commenter opined that the cost to stakeholders of
extrapolating payment error recoveries without an FFS Adjuster
outweighed any benefits to the rule. The commenter noted that CMS'
analysis of the regulatory impact in the proposed rule ignored changes
in MA bids, including reduced or eliminated product availability,
increased administrative costs to MAOs for auditing provider medical
record documentation and coding, and the cost of responding to RADV
audits. Other commenters argued that extrapolation, along with the
elimination of the FFS Adjuster, would threaten the MA program more
generally through consequences on the bidding process, reduced
incentives for cost savings, reduced benefits to enrollees, and
increased premiums. A commenter requested that CMS consider that
selecting contracts that represent a disproportionate amount of an
MAO's business for RADV audits may drive smaller organizations out of
the MA program.
Response: It is our objective to strengthen the MA program by
ensuring that the payments received by MAOs are accurate and that the
Federal Government recovers any funds, representing taxpayer dollars,
to which an MAO was not entitled. Our RADV audit methodology, which
will not include an FFS Adjuster, should not have any material impact
on MAOs' bidding practices or offerings because any funds recovered
under RADV would be for payments to which the MAO was never entitled.
Consistent with a prior GAO recommendation to focus on MAO contracts
most likely to have high rates of improper payments, we have also
shifted our RADV approach from a largely untargeted, random sampling
from a universe of most of an audited MAOs' enrollees to a more
targeted, risk-based approach that incorporates risk factors, such as
HCCs that were more likely to be in error. This current approach
enables the Federal Government to focus its limited auditing resources
on areas where improper payments are more likely to be found, and
reduces audit burden on those MAOs that are not at high risk of
improper payments. We believe, for example, that MAOs that implement
meaningful steps to reduce the reporting of unsupported diagnoses will
be less likely in the future to be chosen for a CMS RADV audit because
the indicators of potential improper payment risk will be greatly
reduced in the risk adjustment data.
Comment: A commenter requested that CMS withdraw the proposed RADV
provisions and develop a new audit procedure in concert with industry
stakeholders. Several commenters noted that CMS has announced no plans
to address FFS Medicare diagnosis errors in the original payments to
plans. These commenters assert that CMS' failure to provide a general
adjustment for payment bias does not justify our proposal not to apply
an FFS Adjuster for audited plans.
Response: We believe these comments are outside the scope of the
proposed rule's provisions. The RADV program enforces the longstanding
medical record documentation regulatory requirement as it relates to
risk adjustment, not the analyses performed to determine the risk
adjustment coefficients used to calculate risk scores, and thus risk-
adjusted payments. It would be inappropriate to address these
determinations and calculations via this final rule's RADV payment
error methodology.
Comment: Several commenters requested that we provide additional
disclosures of information related to our FFS Adjuster study to enhance
transparency, some arguing that the Information Quality Act (Pub. L.
106-554) requires disclosure of such materials. For example, a
commenter requested copies of the medical records reviewed during the
FFS Adjuster study and diagnostic coding protocols followed by
reviewers, citing the Information Quality Act as the justification for
this request. Another stated that additional data is needed in order to
provide a meaningful response, such as the HCCs mapped from diagnoses
on the claims from Medicare FFS data. A commenter argued that the RADV
provisions violated the Administrative Procedures Act (APA) due to the
disclosure of insufficient
[[Page 6659]]
methodology or data to support these policies. Another criticized the
extension of the proposed rule comment period beyond 60 days as
favoritism by CMS for MAOs as opposed to other stakeholders. Finally, a
commenter asserted that the study was not compliant with actuarial
professional standards because CMS did not identify a qualified actuary
involved in the study and did not release information about how the
study or proposed policy complied with the Actuarial Standards of
Practice.
Response: Our approach after the release of the proposed rule was
to ensure as much transparency as possible so that stakeholders could
provide meaningful comment to our proposal not to apply an FFS
Adjuster. To this end, we maximized data availability to the public and
provided extended time for stakeholders to examine and opine on the
data used in the study. As stated previously, since the publication of
the FFS Adjuster Study on October 26, 2018, and the 2018 proposed rule
on November 1, 2018, we published data and several related notices to
further enhance transparency and to encourage robust public comment,
including enhanced discussions of the methodology and assumptions used
to conduct the study, extensions to the comment period of the proposed
rule, and the release of the results of a replicated study. The data
and methodology we disclosed should sufficiently allow for stakeholders
to evaluate and comment on the study.
Comment: As part of the comments received, MAOs analyzed and
assessed our FFS study and the data, assumptions, and methodology it
relied on. Many of these comments provided lengthy analysis and
critique, and some commenters performed counter-studies. Commenters
criticized CMS' recalibration of the CMS-HCC model, the Inflated Post-
Audit Risk Score (IPARS) adjustment, and the decision to convert claim-
level discrepancy rates to beneficiary-level discrepancy rates.
Response: We appreciate the lengths that commenters went to examine
and provide comment on our study, and we agree that any study that
relies on assumptions, estimates, and projections has inherent
limitations. However, the finalization of our proposal not to apply an
FFS Adjuster does not depend on the results of our study. Even if
systematic payment error exists, it does not impact the requirement
that submitted diagnoses must be adequately supported by medical
records. An adjustment factor to account for hypothetical systematic
payment differences would not be appropriately applied in the RADV
context, even if such systematic differences existed. Additionally, our
decision relies on our reading of the coding pattern adjustment
statutory provision and its minimum levels.
Further, although we are not relying on the empirical findings of
our study as the basis for our decision not to apply an FFS Adjuster,
we do not agree with those commenters who claim that our study or their
counter-studies provide evidence that FFS errors systematically reduce
payments to MAOs.
First, the magnitude of over-coding (diagnosis codes unsupported by
medical records) in the Medicare FFS data is much smaller than some
commenters have suggested. While some have claimed that the rate is as
high as over 30 percent, our study calculated beneficiary-level
discrepancy rates for each HCC that were on average only about 3
percent, with a median of 1.8 percent. The beneficiary-level error
rate, and not the claim-level error rate, is the appropriate measure of
inappropriate coding because an HCC is supported if just one claim in
the relevant year for that beneficiary is supported.
Second, the FFS data contains significant under-coding (unreported
diagnosis codes that have medical record support), which would likely
offset the effects of FFS over-coding, to the extent any such effects
exist. Although accurate coding supported by the medical record is
required in Medicare FFS, Medicare FFS providers have less of an
incentive to report all valid, supported codes because this does not
increase their payments as directly as it does for MAOs in Part C. This
is supported by the extant literature.\41\ Significantly, the
commenters' counter-studies purporting to show that Medicare FFS errors
systematically reduce payments to MAOs do not adequately address the
offsetting effects of Medicare FFS under-coding.
---------------------------------------------------------------------------
\41\ Kronick and Welch found that positive coding intensity in
the MA risk scores increased faster than comparable FFS risk scores.
Richard Kronick & Pete Welch, Measuring Coding Intensity in the
Medicare Advantage Program, Medicare & Medicaid Research Review,
2014 Vol. 4, No. 2, at E1-E19. https://www.cms.gov/mmrr/downloads/mmrr2014_004_02_a06.pdf.
Frogner et al. examined the impact of incomplete FFS coding in
the context of the CMS-HCC model and found that it biases payments
to MAOs upwards. Bianca K. Frogner, Gerard F. Anderson, Robb A.
Cohen & Chad Abrams, Incorporating New Research Into Medicare Risk
Adjustment, 49 Medical Care 295 (2011). https://journals.lww.com/lww-medicalcare/Fulltext/2011/03000/Incorporating_New_Research_Into_Medicare_Risk.11.aspx.
Welch et al. found that regional variation of diagnostic coding
in FFS was related to case-fatality. H.G. Welch, S.M. Sharp, D.J.
Gottlieb, J.S. Skinner & J.E. Wennberg, Geographic Variation in
Diagnosis Frequency and Risk of Death Among Medicare Beneficiaries,
305 JAMA 1113 (2011). That is, FFS Medicare enrollees have variable
diagnostic coding. https://jamanetwork.com/journals/jama/fullarticle/646152.
Finally, MedPAC (1998) demonstrated that the persistence in
diagnostic coding for FFS beneficiaries was low from year to year,
even for conditions that were serious and permanent, documenting
incomplete coding for FFS enrollees. Medicare Payment Advisory
Commission, Report to the Congress: Medicare Payment Policy, Vol. 1
at 32, Vol. 2 at 15-18 (1998).
---------------------------------------------------------------------------
Third, the effects of Medicare FFS over-coding are also offset by
the increased costs associated with that over-coding. As noted
previously, Medicare FFS claims are subject to error correction and
payment adjustment when they are based on diagnosis codes not supported
by the medical record. (See Medicare Program Integrity Manual sections
3.3.1.1, 3.3.2.1, 3.6.2.4, 6.5.2, 6.5.3.) Thus, if CMS were to delete
the unsupported Medicare FFS codes used to calibrate the risk
adjustment model, it would also have to remove certain expenditures
associated with those codes that should have been denied for payment.
The purpose of the IPARS adjustment was to account for this
relationship and the offsetting effects of costs associated with FFS
over-coding.\42\ The commenters' counter-studies did not adequately
address these effects.
---------------------------------------------------------------------------
\42\ We note that applying the IPARS adjustment rather than
directly studying this effect empirically is an inherent limitation
of our study. As a result, our study's empirical findings are
limited to the conclusion that attenuation bias, an effect described
in the June 28, 2019 Addendum, does not systematically reduce
payments to MAOs.
---------------------------------------------------------------------------
Fourth and finally, we note that the counter-studies purporting to
prove that an FFS Adjuster in a specific amount is required employed
widely differing methodologies and arrived at widely varying estimates
for their FFS Adjuster. For example, one commenter claimed that an FFS
Adjuster of 9 percent would be appropriate based on the analysis they
conducted, while another claimed the appropriate amount would be 33
percent based on their analysis. The fact that these studies can be
conducted in various different ways and produce such a wide range of
results raises the question whether an FFS Adjuster is even a
reasonable or practical means of addressing any risk adjustment
coefficients that were too low and any that were too high, and if that
was because of any over- and/or under-coding by FFS providers. It also
further shows the complexity of the issues in measuring the effects of
both under-coding and over-coding in FFS, and the fact that any related
study must rely on assumptions, estimates, and projections,
[[Page 6660]]
and will, therefore, have inherent limitations.
Thus, we do not agree with commenters who claim that our study or
their counter-studies provide evidence that Medicare FFS errors
systematically reduce payments to MAOs. For a complete discussion of
the study methodology and all of its conclusions, see the November 1,
2018, proposed rule, the FFS Adjuster Study and Technical Appendix
published on October 26, 2018, the study Addendum published June 28,
2019, and the other study documents previously described in this rule.
4. Summary of Final Policies
We are finalizing our proposal to not apply an FFS Adjuster to RADV
audits because the ``actuarial equivalence'' and ``same methodology''
provisions do not apply to the obligation of an MAO to report and
return improper payments for diagnoses lacking medical record support,
including those improper payments identified during a RADV audit. We
have also concluded that it would not be reasonable to interpret the
Act as requiring a reduction in payments to MAOs by at least a
statutorily-set minimum percentage pursuant to the coding pattern
adjustment, while at the same time prohibiting CMS from enforcing
longstanding documentation requirements by requiring an offset to the
recovery amounts calculated for CMS audits.
While the D.C. Circuit's decision in UnitedHealthcare pertained to
the Part C Overpayment Rule, its reasoning supports our conclusion that
an FFS Adjuster is neither required nor appropriate in the context of
RADV. ``The role of the actuarial-equivalence provision is to require
CMS to model a demographically and medically analogous beneficiary
population in traditional Medicare to determine the prospective lump-
sum payments to [MAOs].'' (UnitedHealthcare, 16 F.4th at 870.) The RADV
program, like the Overpayment Rule, applies after the fact to require
MAOs to refund any payment to which they are not entitled, based on
diagnoses that lack support in the medical record.
In the proposed rule, we also discussed a study that we conducted
that concluded that diagnosis error in FFS claims data does not lead to
systematic payment error in the MA program. We also stated that, even
if systematic error exists, it would be inequitable to correct such
errors in the payments made to audited contracts only. Furthermore, in
the interest of transparency, CMS publicly released additional data
underlying the study cited in the proposed rule related to the FFS
Adjuster, provided information on a replication of our original study,
and extended the comment period to allow more time for stakeholders to
review the data and provide comment.
Despite our discussion of the FFS Adjuster study in the proposed
rule and efforts to achieve transparency, we are not relying upon the
study to reach our conclusion that an FFS Adjuster is not appropriate
in the RADV context. We recognize that any study that aims to
demonstrate the impact of potential error in Medicare FFS diagnoses
data on MA requires the use of certain assumptions, estimations, and
projections, and that any theoretical study has natural limits that
must account for those assumptions. However, that does not change our
ultimate conclusion that, even if systematic payment error exists, an
adjustment factor to account for this error would not be appropriately
applied in the RADV context. We also do not intend for this conclusion
to suggest that we believe an FFS Adjuster is appropriate or necessary
outside of the RADV context.
Our position is consistent with the conclusion of the D.C. Circuit,
which is that the actuarial-equivalence requirement is not an
``entitle[ment] . . . to a precise payment amount'' for a Medicare
Advantage insurer, but only ``an instruction to the Secretary regarding
the design of the risk adjustment model as a whole . . . describ[ing]
the type of `payment amount[s]' that the risk adjustment model should
produce''; ``[i]t does not directly govern how CMS evaluates the
validity of diagnoses or defines `overpayment.''' (UnitedHealthcare, 16
F.4th at 885-86.)
IV. Collection of Information Requirements
As defined under 5 CFR 1320.3(b) and (c) of the Paperwork Reduction
Act of 1995 (PRA's) (44 U.S.C. 3501 et seq.) implementing regulations,
this final rule does not impose any new or revised ``collection of
information'' requirements or related ``burden.'' More specifically,
the utilization of extrapolation will not affect the existing process
for MAOs submitting medical record documentation pursuant to RADV
audits under Sec. 422.310(e). The existing requirements for MAOs
submitting medial record documentation are active and approved by OMB
under control number 0938-1000 (CMS-10191). As this final rule is not
imposing any new or revised ``collection of information'' requirements
or related ``burden'', this rule is not subject to the requirements of
the PRA.
V. Regulatory Impact Analysis
A. Statement of Need
This final rule clarifies certain program integrity policies in the
MA program, specifically, the recovery of improper payments identified
during RADV audits, and aligns with the Administration's focus on the
fiscal sustainability of the MA program and the interests of Medicare
beneficiaries, providers, and MAOs.
The improper payment measurements conducted each year by CMS, which
are included in the HHS Agency Financial Report, as well as audits
conducted by the HHS-OIG, have demonstrated that the MA program is at
high risk of improper payments. In FY 2021 (based on CY 2019 payments),
we calculated that the agency made over $15 billion in erroneous
overpayments.\43\ (The improper payment measurements CMS conducts for
all programs include both overpayments and underpayments.) The HHS-OIG
has also released several reports over the past few years that also
demonstrate a high risk of improper risk adjustment payments in the MA
program,\44\ and has identified the MA program as one of the top
management and performance challenges facing HHS for several years due
to the high rate of improper payments.\45\ The Medicare program,
including MA, has also been identified by the GAO as a high-risk
[[Page 6661]]
program due to the risk of substantial improper payments.\46\
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\43\ HHS, FY 2021 HHS Agency Financial Report, https://www.hhs.gov/sites/default/files/fy-2021-hhs-agency-financial-report.pdf.
\44\ For example, see reports: Medicare Advantage Compliance
Audit of Specific Diagnosis Codes That Anthem Community Insurance
Company, Inc. (Contract H3655) Submitted to CMS, May 21, 2021,
https://oig.hhs.gov/oas/reports/region7/71901187.asp; Medicare
Advantage Compliance Audit of Specific Diagnosis Codes That Blue
Cross Blue Shield of Michigan (Contract H9572) Submitted to CMS,
February 24, 2021, https://oig.hhs.gov/oas/reports/region2/21801028.asp; Medicare Advantage Compliance Audit of Specific
Diagnosis Codes That Highmark Senior Health Company (Contact H3916)
Submitted to CMS, September 29, 2022, https://oig.hhs.gov/oas/reports/region3/31900001.asp; Medicare Advantage Compliance Audit of
Specific Diagnosis Codes That Cariten Health Plan, Inc., (Contract
H4461) Submitted to CMS, July 18, 2022, https://oig.hhs.gov/oas/reports/region2/22001009.asp; Medicare Advantage Compliance Audit of
Diagnosis Codes That SCAN Health Plan (Contract H5425) Submitted to
CMS, February 3, 2022, https://oig.hhs.gov/oas/reports/region7/71701169.asp; Medicare Advantage Compliance Audit of Diagnosis Codes
That Humana, Inc., (Contract H1036) Submitted to CMS, April 19,
2021, https://oig.hhs.gov/oas/reports/region7/71601165.asp.
\45\ See OIG, 2021 Top Management and Performance Challenges
Facing HHS, pg. 13, https://oig.hhs.gov/reports-and-publications/top-challenges/2021/index.asp.
\46\ https://www.gao.gov/highrisk/medicare-program-improper-payments.
---------------------------------------------------------------------------
RADV audits are CMS' main corrective action for improper
overpayments in the MA program made to MAOs when there is a lack of
documentation in the medical record to support the diagnoses reported
for risk adjustment. The RADV audits confirm the presence of the
diagnoses related to the enrollee's HCC profile through the review of
certain categories of medical records submitted by the MAOs for the
purpose of a RADV audit. Risk adjustment discrepancies are identified
when an enrollee's HCCs used for payment (which is, again, based on MAO
self-reported data) differ from the HCCs assigned based on the medical
record review performed by CMS through the RADV audit process. Risk
adjustment discrepancies can be aggregated to determine an overall
amount of payment error for sampled enrollees. In turn, this payment
error for the sample of contract enrollees can be extrapolated to
calculate a payment error estimate for the universe of enrollees from
which the sample is selected, within specified confidence intervals.
The policies in this final rule are essential to having an
effective RADV program that protects taxpayer dollars and ensures
oversight of the MA program.
B. Overall Impact
We examined the impact of this final rule as required by Executive
Order 12866 on Regulatory Planning and Review (September 30, 1993),
Executive Order 13563 on Improving Regulation and Regulatory Review
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19,
1980, Pub. L. 96-354), section 1102(b) of the Act, section 202 of the
Unfunded Mandates Reform Act of 1995 (UMRA) (March 22, 1995; Pub. L.
104-4), Executive Order 13132 on Federalism (August 4, 1999), and the
Congressional Review Act (5 U.S.C. 804(2)).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity. Section
3(f) of Executive Order 12866 defines a ``significant regulatory
action'' as an action that is likely to result in a rule: (1) having an
annual effect on the economy of $100 million or more in any 1 year, or
adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local or Tribal governments or communities (also
referred to as ``economically significant''); (2) creating a serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive Order.
A regulatory impact analysis (RIA) must be prepared for major rules
with significant regulatory action/s and/or with economically
significant effects ($100 million or more in any 1 year). Based on our
estimates, OMB's Office of Information and Regulatory Affairs has
determined this rulemaking is ``economically significant'' as measured
by the $100 million threshold, and hence also a major rule under
Subtitle E of the Small Business Regulatory Enforcement Fairness Act of
1996 (also known as the Congressional Review Act). Accordingly, we have
prepared a Regulatory Impact Analysis that to the best of our ability
presents the costs and benefits of the rulemaking. Finally, in
accordance with the provision of the Executive Order 12866, this final
rule was reviewed by the Office of Management and Budget.
Section 202 of UMRA also requires that agencies assess anticipated
costs and benefits before issuing any rule whose mandates require
spending in any one year of $100 million in 1995 dollars, updated
annually for inflation. In 2022, that threshold is approximately $165
million. This final rule would not impose a mandate that will result in
the expenditure by State, local, and Tribal governments, in the
aggregate, or by the private sector, of more than $165 million in any
one year.
The RFA requires agencies to analyze options for regulatory relief
of small entities, if a rule has a significant impact on a substantial
number of small entities. For purposes of the RFA, small entities
include small businesses, nonprofit organizations, and small
governmental jurisdictions. The great majority of hospitals and most
other health care providers and suppliers are small entities, either by
being nonprofit organizations or by meeting the SBA definition of a
small business (having revenues of less than $8.0 million to $41.5
million in any 1 year. This final rule affects MAOs with a minimum
threshold for small business size of $41.5 million (see the Small
Business Administration's website at http://www.sba.gov/content/small-business-size-standards). This final rule additionally affects
hospitals (NAICS subsector 622) and a variety of provider categories,
including physicians and specialists (NAICS subsector 621).
To clarify the flow of payments between these entities and the
Federal Government, note that MAOs submit bids (that is, proposed plan
designs and projections of the revenue needed to provide those
benefits, divided into three categories--basic benefits, supplemental
benefits, and Part D drug benefits) in June for operation in the
following contract year. These bids project payments to hospitals,
providers, and staff as well as the cost of administration and profits.
These bids in turn determine the payments from the Medicare Trust Fund
to the MAOs that pay providers and other stakeholders for their
provision of covered benefits to enrollees in MA plans. Consequently,
our analysis will focus on MAOs.
There are various types of Medicare health and drug plans,
including MAOs, demonstrations, section 1876 cost plans, Part D
prescription drug plans (PDPs), and PACE organizations. There are a
variety of ways to assess whether MAOs meet the $41.5 million threshold
for small businesses. The assessment can be done by examining net
worth, net income, cash flow from operations, and/or projected claims
as indicated in their bids. Using projected monetary requirements and
projected enrollment for 2018 from submitted bids, 32 percent of the
MAOs fell below the $41.5 million threshold for small businesses.
Additionally, an analysis of 2016 data shows that 32 percent of all
MAOs fall below the minimum threshold for small businesses.
If a rule potentially has a significant impact on a substantial
number of small entities, the rule must discuss steps taken, including
alternatives, to minimize the burden on small entities. While some of
the entities affected by this rule are not-for-profit organizations and
small businesses, the impact is not significant. No changes are made to
long-standing audit documentation standards as a result of this rule;
therefore, there is no significant impact to small entities (or any
entities). MAOs provide medical record documentation to CMS as a normal
business practice pursuant to RADV audits. Consequently, the Secretary
has certified that this final rule will not have a significant economic
impact on a substantial
[[Page 6662]]
number of small entities, and we have met the requirements of the RFA.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a metropolitan
statistical area and has fewer than 100 beds. Therefore, the Secretary
has certified that this final rule will not have a significant impact
on the operations of a substantial number of small rural hospitals, and
as a result we are not preparing an analysis for section 1102(b) of the
Act.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a final rule that imposes
substantial direct requirement costs on State and local governments,
preempts State law, or otherwise has federalism implications. Because
this final rule does not impose any substantial costs on State or local
governments, the requirements of Executive Order 13132 are not
applicable.
C. Regulatory Review Cost
If regulations impose administrative costs on reviewers, such as
the time needed to read and interpret this final rule, then we should
estimate the cost associated with regulatory review. There are
approximately 750 MA contracts (of which, 65 MA contracts include
PDPs). We assume each entity will have one designated staff member who
will review the entire rule. Other assumptions are possible and will be
reviewed after the calculations.
Using the 2021 wage information from the Bureau of Labor Statistics
(BLS) for medical and health service managers (code 11-9111), we
estimate that the cost of reviewing this rule is $115.22 per hour,
including fringe benefits and overhead costs (http://www.bls.gov/oes/current/oes_nat.htm). Assuming an average reading speed for technical
material of 200 words per minute, we estimate that it will take
approximately 2 hours for each person to review this final rule. For
each entity that reviews the rule, the estimated cost is therefore,
$230.44 (2 hours * $115.22). Therefore, we estimate that the total cost
of reviewing this regulation is $172,830 ($230.44 * 750 reviewers).
Note that this analysis assumes one reader per contract. Some
alternatives include assuming one reader per parent entity. Using
parent organizations instead of contracts would reduce the number of
reviewers to approximately 500 (assuming approximately 250 parent
organizations), and this would reduce the total cost of reviewing by a
third. However, we believe it is likely that reviewing will be
performed at the contract level. The argument for this is that a parent
organization might have local reviewers; even if that parent
organization has several contracts that might have a reader for each
distinct geographic region, to identify effects of provisions specific
to that region.
D. Detailed Economic Analysis
This final rule creates regulations to govern the collection of
extrapolated audit findings in MA. As we develop our approach to
statistical sampling and extrapolation, we are taking account of the
recommendations of the 2016 GAO report entitled, ``Fundamental
Improvements Needed in CMS' Effort to Recover Substantial Amounts of
Improper Payments.'' The GAO recommended that CMS select plans based on
the risk for improper payments. Prior to the GAO report, CMS selected
stratified random samples of enrollees during RADV audits, including
our 2011 to 2013 audits for which we proposed to apply the policies in
this rule. However, beginning with the 2014 audit year, CMS began
incorporating the potential risk of improper payments to MAOs, based on
past audit findings and other factors, into selecting enrollee samples
for audits. Accordingly, CMS expects to be more effective in
identifying improper payments in future audit years.
To clarify in more detail how the final rule impacts the recovery
audit process, we note the following:
The Part C Improper Payment Measurement audits are
conducted annually to measure payment error in the Medicare Part C
program. After defining the eligible population, a representative
sample of beneficiaries from risk adjustment eligible contracts are
selected for medical record review. MAOs submit medical record
documentation to substantiate the CMS-HCCs payments sampled by CMS for
each year's Part C Improper Payment Measurement. Certified coders code
the medical records, and the findings are used to recalculate risk
scores for each sampled beneficiary. The difference between the payment
risk scores and the recalculated risk scores is termed Risk Adjustment
Error. Validation results from the sample are extrapolated to the
broader Part C population to produce payment error estimates that meet
the PIIA requirements for the payment year. No recoveries are made
through these audits.
Findings from the Part C Improper Payment Measurement and
contract-level audits are used to help identify cohorts of
beneficiaries for which CMS may be most at risk for making improper
payments to MAOs. While CMS has flexibility to decide how to focus
audits, CMS intends to focus audits on such MAOs in the future, and has
been taking a more focused approach on areas of high risk of improper
payments starting with the PY 2014 RADV audits.
By better targeting contract-level RADV audits based on
MAOs' risk of receiving improper payments, CMS expects to have a
sentinel effect and reduce the historical Part C improper payment rate
over time.
1. Expected Impact of These Provisions
While we cannot fully estimate the quantitative impact of this
provision, we can clearly identify certain components of impact. We
start with some basic facts:
With extrapolation applied to audit findings for payment
years 2018 and later, we would realize a positive return on investment.
The annual cost per year for the contract-level RADV audit program
activities, with or without the changes finalized in this rule, is
approximately $51 million.
Extrapolating audit findings does not increase the cost
burden on the plan. The cost to the plan of complying with a RADV audit
is neither the subject of nor affected by this provision.
We estimate that findings from audits of MAO contracts for
PYs 2011, 2012, and 2013 will identify a total of $683.2 million in
extrapolated improper payments. This $683.2 million represents a
transfer from the Federal Government to insurers, because it reflects
improper payments for human coding error which CMS paid to MAOs.
Although we will not exercise our authority to seek extrapolated
contract-level recoveries for these payment years, we refer to the
$683.2 million in improper payments to estimate future expected
recoveries from finalizing this rule.
30 contracts per year were audited in PYs 2011 through
2013.
Approximately 80 percent of the audited contracts in 2011
through 2013 had findings of improper payments.
Using this data, we can conclude as follows:
$683.2 million divided by 3 audit years is $227.7 million
per audit year.
$227.7 million per audit year divided by 24 contracts (30
contracts multiplied by 0.80) with audit findings
[[Page 6663]]
per year is approximately $9.5 million in findings per contract per
year.
As we are adopting GAO recommendations by focusing on
contracts at higher risk for improper payments, if the average level of
audit findings per contract, at a minimum, holds constant, the $9.5
million per contract with audit findings per year multiplied by 30
contracts with audit findings per year would produce approximately $285
million in improper payment recoveries per audit year.\47\
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\47\ The $285 million amount is a theoretical estimated amount
for the audit of PY 2014; however, as we have previously explained,
CMS will begin extrapolation with the PY 2018 RADV audits. The $285
million amount is the baseline amount from which CMS begins
adjusting estimated improper payment recoveries for inflation beyond
PY 2014. Note, if CMS conducts more than one payment year audit
annually, savings estimates will be higher in subsequent years.
---------------------------------------------------------------------------
With extrapolation applied to audit findings beginning with 2018
payment year audits, the expected level of recovery in calendar year
2025 (the year in which we project to initiate improper payment
recoveries for PY 2018 audits) would produce $428.4 million in net
recovery (that is, $479.4 million minus the annual cost of the RADV
program of $51 million). However, we note that while non-extrapolated
recoveries would likely result in an average of $8.2 million in
estimated improper payment recoveries associated with each audited
payment year, the RADV audit program would not achieve positive net
recoveries per year without the RADV rule (see Table 2).
Improper payment recoveries in years 2025 and later
increase based on projected rates of growth in MA spending. The 10-year
impact of this final rule is estimated in Table 3. Estimating recovery
amounts per year is difficult for the following reasons:
The improper payment rate per year, as indicated in the
reports of the CMS Chief Financial Officer, have been declining and are
likely to continue to decline due to the impact that these RADV audits
have on MAO efforts to reduce the reporting of unsupported HCCs.
The aggregate amount paid to MAO contracts is increasing
due to enrollment growth and other cost inflationary factors. The
Office of the Actuary at CMS annually publishes a Trustees Report that
contains projected annual MA enrollment in aggregate. All other things
being equal, the increase in enrollment will cause nominal dollars in
error to increase. The historical decline in the error rate may or may
not offset the increase due to increasing enrollment, making a
projection difficult.
We previously indicated that acceptance of GAO
recommendations would facilitate auditing contracts with cohorts of
enrollees associated with higher degrees of risk for CMS making
improper payments, and therefore assume there would be findings in all
contract audits.
For the reasons cited previously in this section, we are increasing
the annual estimate of recoveries of improper payments to the Medicare
Trust Fund at the same rate as the projected growth in MA spending
stated in the FY 2023 President's Budget, beginning with $479.4 million
for 2025 (when we anticipate beginning to receive extrapolated
recoveries). In 2023 and 2024, we estimate receiving approximately
$13.1 million and $28.0 million, respectively, in non-extrapolated
recoveries from 2011 through 2013 and 2014 and 2015 payment year
audits. Accordingly, the result would be negative net recovery amounts
of $37.9 million ($13.1 million minus the $51 million annual cost of
the RADV audit program) in 2023 and $23 million ($28 million minus $51
million) in 2024.
In total, the estimated recovery amount from 2023 through 2032 is
$4.7 billion (see Table 3). This money is a reduction in spending of
the Medicare Trust Fund resulting mostly from recoveries (or transfers)
from MAOs to the Federal Government; there will be no money transferred
to enrollees.
The intent of this rule is to protect taxpayer dollars and ensure
oversight of the MA program, in part by reducing the Part C improper
payment rate.
2. Alternatives Considered
This rule includes transfers from MAOs to the Federal Government.
The aggregate impact of each of these over 10 years is approximately
$4.7 billion (see Table 3). Various alternatives to this rulemaking
were considered, including the use and timing of extrapolation, as well
as the application of an FFS Adjuster. These alternatives are described
in this section of this rule.
a. Alternatives Related to the Extrapolation of RADV Findings
As an alternative to our decision to extrapolate our RADV audits
beginning in PY 2018, we considered policies whereby we would not
extrapolate and would only collect improper payments associated with
sampled enrollees as a result of RADV audits. While such a policy would
likely be favorably received by MAOs, it would result in a drastic
reduction in potential recoveries and dilute the sentinel impact that
the RADV program has on reducing the Part C improper payment rate.
Specifically, annual net recoveries of improper payments (that is,
estimated collections from past audits minus the estimated annual audit
program costs) would be reduced from approximately $234 million \48\ to
negative $42.8 million (see Table 2). Given the overall cost of $51
million per year to administer the RADV program, this would result in a
negative return on investment of approximately $6.2:1 (negative $51
million divided by $8.2 million). This would be in direct conflict with
our responsibilities under the PIIA to reduce improper payments and
fiduciary responsibility to recover improper payment from the Medicare
Trust Funds, and therefore, this alternative was not an acceptable
alternative to CMS.
---------------------------------------------------------------------------
\48\ $234 million in net recoveries is derived by subtracting
$51 million (cost of administering the CMS RADV audit program) from
the theoretical estimated amount of extrapolated recoveries ($285
million) that would have been collected if extrapolation was applied
for the PY 2014 audits.
---------------------------------------------------------------------------
We also considered whether to apply extrapolation beginning in PY
2011, as proposed, as well as other payment years after PY 2011.
Beginning extrapolation in PY 2011 would result in the collection of
approximately $2 billion in improper payments for PYs 2011 to 2017, in
contrast to the $41.1 million in improper payments we estimate to
collect for these years as a result of this final rule. While we
believe that applying extrapolation to RADV findings beginning in PY
2011 (or other payment year after PY 2011) would be a supportable
decision and consistent with our mandate to protect taxpayer dollars,
we determined that the overall long-term success of the RADV program
(and ultimately the MA program) requires us to consider the projected
level of effort and likelihood of collecting improper payments along
with other practical realities.
As previously described, we believe that beginning extrapolation
for PY 2018 RADV audits represents an appropriate policy because it
recognizes our fiduciary duty to protect taxpayer dollars from
overpayments and preserves our ability to collect on significant
(extrapolated) amounts of overpayments made to plans beginning in PY
2018. This final rule will also allow CMS to focus on conducting future
RADV audits as soon as practicable after an MAO payment year concludes,
which was the topic of significant public comment to the proposed rule.
Lastly, we have determined that it is in the best interest of all
parties to ensure that the contract-level RADV appeals process, which
is also outlined in regulation, is able to
[[Page 6664]]
successfully process all RADV appeals. By not using an extrapolation
methodology prior to PY 2018, we expect to better control the total
number of active appeals that are submitted in the first few years
following finalization of this rule, which will alleviate burden on
MAOs and CMS.
b. Alternatives Related to the Application of an FFS Adjuster to RADV
Improper Payment Determinations
As an alternative to our decision to not apply an FFS Adjuster to
our RADV overpayment determinations, we considered whether to finalize
a policy whereby we would apply an FFS Adjuster to RADV overpayment
determinations. While we contemplated adoption of an FFS Adjuster as
part of our 2012 Methodology, we believe that finalizing such an
approach through regulatory or other means would be an unsupportable
and unreasonable interpretation of the Act.
As previously described, we have determined that the ``actuarial
equivalence'' and ``same methodology'' provisions do not apply to the
obligation of an MAO to report and return overpayments that they have
identified, including overpayments due to lack of medical record
support for diagnoses, or their obligation to return overpayments
identified based on a RADV audit. In UnitedHealthcare, the D.C. Circuit
held that actuarial equivalence and same methodology do not apply to
the MAOs' obligation to report and return overpayments that they have
identified, including overpayments arising from the MAOs' submission of
and payments based on diagnoses unsupported by their beneficiaries'
medical records. Although UnitedHealthcare addressed the enforceability
of the Part C overpayment regulation, its reasoning applies just as
strongly in the RADV context and supports our conclusion that the use
of an FFS Adjuster is neither required nor appropriate for an RADV
audit.
We have also concluded that it would be unreasonable to interpret
the Act as requiring a minimum reduction in payments in one provision
(the coding pattern provision), while at the same time prohibiting CMS
in an adjacent provision (the actuarial equivalence provision) from
enforcing those longstanding documentation requirements (by requiring
an offset to the recovery amount calculated for CMS audits). To the
contrary, because the Act requires CMS to reduce payments to MAOs by at
least a specific minimum percentage, the only reasonable interpretation
of the Act is that CMS would pay MAOs at those reduced rates, under the
existing payment model,\49\ and enforce the longstanding documentation
requirements through CMS' audits.
---------------------------------------------------------------------------
\49\ Any changes to the CMS-HCC payment model are published in
the annual payment notice.
Table 2--Expected Net Recoveries of CMS RADV Improper Payments per Year
Without Extrapolation
------------------------------------------------------------------------
Amount ($ in millions)--
Label Item non-extrapolated Source or
calculation
------------------------------------------------------------------------
(A).......... Estimated Non- $41.1
Extrapolated
Collections
for 2011-2015
audits.
(B).......... Number of 5
years, 2011-
2015.
(C).......... Estimated $8.2 (C) = (A)/(B).
Average Non-
Extrapolated
Collections
per year.
(D).......... RADV audit $51 Estimated costs
programs costs of RADV
per year. program in
which
statistically
valid samples
are pulled to
audit sub-
cohorts of
enrollees for
a minimum of
30 contracts
per year.
(E).......... Estimated net ($42.8) (E) = (C)-(D).
recoveries of
improper
payments per
year without
extrapolation.
------------------------------------------------------------------------
Table 3--Impact on Estimated Collections of Improper Payments per Year From RADV Rule
[$ in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated Non-Extrapolated 13.1 28.0 11.6 10.9 12.7 13.5 14.4 15.4 16.4 17.5 153.5
Collections Assumed Without
RADV Final Rule Changes.......
Estimated Collections from 13.1 28.0 479.4 447.5 522.6 557.2 594.0 633.2 675.0 719.5 4,669.5
Audits Completed in Prior
Years With RADV Final Rule
Changes.......................
Additional Estimated 0.0 0.0 467.8 436.6 509.9 543.7 579.6 617.8 658.6 702.0 4,516.0
Collections as a Result of
RADV Final Rule...............
--------------------------------------------------------------------------------------------------------------------------------------------------------
E. Accounting Statement and Table
As required by OMB Circular A-4 (available at https://obamawhitehouse.archives.gov/omb/circulars_a004_a-4/), Table 4 shows
the costs and transfers associated with the provisions of this final
rule for calendar years 2022 through 2031.
[[Page 6665]]
Table 4--Accounting Statement--Classification of Estimated Transfers
------------------------------------------------------------------------
Discount rate
Category ---------------------- Period covered
7% 3%
------------------------------------------------------------------------
Transfers:
Annualized Monetized $410 $433 CYs 2023-2032.
Transfers ($ in Millions).
------------------------------------------------------------------------
From Whom to Whom.......... MAOs to Federal Government.
------------------------------------------------------------------------
We estimate that from 2022 through 2031 this final rule will
generate Federal annualized monetized transfers of $410 million and
$433 million, at the 7 percent and 3 percent discount rates
respectively, from MAOs back to the Medicare Trust Fund.
This final rule is subject to the Congressional Review Act
provisions of the Small Business Regulatory Enforcement Fairness Act of
1996 (5 U.S.C. 801 et seq.) and has been transmitted to the Congress
and the Comptroller General for review.
Chiquita Brooks-LaSure, Administrator of the Centers for Medicare &
Medicaid Services, approved this document on January 24, 2023.
List of Subjects in 42 CFR Part 422
Health facilities, Health maintenance organizations (HMO),
Medicare, Penalties, Privacy Reporting and record keeping requirements.
For the reasons stated in the preamble, the Centers for Medicare &
Medicaid Services proposes to amend 42 CFR part 422 as follows:
PART 422--MEDICARE ADVANTAGE PROGRAM
0
1. The authority citation for part 422 continues to read as follows:
Authority: 42 U.S.C. 1302 and 1395hh.
Subpart G--PAYMENTS TO MEDICARE ADVANTAGE ORGANIZATIONS
0
2. Section 422.300 is revised to read as follows:
Sec. 422.300 Basis and scope.
This subpart is based on sections 1106, 1128J(d), 1852, 1853, 1854,
and 1858 of the Act. It sets forth the requirements for making payments
to MA organizations offering local and regional MA policies, including
calculation of MA capitation rates and benchmarks, conditions under
which payment is based on plan bids, adjustments to capitation rates
(including risk adjustment), collection of risk adjustment data,
conditions for use and disclosure of risk adjustment data, collection
of improper payments and other payment rules. Section 422.458 specifies
the requirements for risk sharing payments to MA regional
organizations.
0
3. Section 422.310 is amended by revising paragraph (e) to read as
follows:
Sec. 422.310 Risk adjustment data.
* * * * *
(e) Validation of risk adjustment data. MA organizations and their
providers and practitioners are required to submit a sample of medical
records for the validation of risk adjustment data, as required by CMS.
There may be penalties for submission of false data. MA organizations
must remit improper payments based on RADV audits, in a manner
specified by CMS. For RADV audits, CMS may extrapolate RADV Contract-
Level audit findings for payment year 2018 and subsequent payment
years.
* * * * *
0
4. Section 422.311 is amended by revising paragraph (a) to read as
follows:
Sec. 422.311 RADV audit dispute and appeal processes.
(a) Risk adjustment data validation (RADV) audits. In accordance
with Sec. Sec. 422.2 and 422.310(e), the Secretary annually conducts
RADV audits to ensure risk-adjusted payment integrity and accuracy.
(1) Recovery of improper payments from MA organizations will be
conducted in accordance with the Secretary's payment error
extrapolation and recovery methodologies.
(2) CMS may apply extrapolation to audits for payment year 2018 and
subsequent payment years.
* * * * *
Dated: January 26, 2023.
Xavier Becerra,
Secretary, Department of Health and Human Services.
[FR Doc. 2023-01942 Filed 1-30-23; 4:15 pm]
BILLING CODE 4120-01-P