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Primer on Medicare Advantage Payments and Audits

Under the Medicare Advantage (MA) program, the Centers for Medicare & Medicaid Services (CMS) makes monthly payments to Medicare Advantage Organizations (MAOs), typically private insurance companies, according to a system of risk adjustment that depends on the health status of each enrollee. Accordingly, MAOs are paid more for providing benefits to enrollees with more severe diagnoses associated with more intensive uses of healthcare resources than to healthier enrollees who would be expected to require fewer resources. To determine the health status of enrollees, CMS relies on MAOs to collect diagnosis codes from their providers and submit these codes to CMS. While the MA plans conduct audits of the claims submitted to them by providers, CMS conducts audits of MAOs because some diagnosis codes are at higher risk for being miscoded, and MA audits that allegedly identify any improper coding may result in overpayment demands from CMS.

Since MAOs receive additional payments when they cover patients with more severe health conditions, this structure presents a potential for fraud and abuse whereby some MAOs may use additional diagnoses to attain high-risk scores, while not necessary reflecting these diagnoses in any documentation. In fact, MA plans have come under scrutiny recently after a Freedom of Information Act (FOIA) lawsuit revealed millions of dollars in overcharges by certain MAOs, specifically health insurers that issue MA plans. A common allegation involves “chart reviews” wherein MA plans find additional diagnosis that are supported by the medical records but were not previously reported or coded. Federal authorities tend to take issue with such diagnoses where they lead to higher cost for the Medicare program but not additional service being provided to the beneficiary. Healthcare providers have historically also encountered significant issues with MA programs. Payment, audits of providers, and claim adjudication are usually governed by contracts that are not necessarily the same amongst MA plans, and which most likely differ from the rules and regulations applicable to traditional Medicare. This is, where providers are audited by MA plans, the audits tend to resemble the commercial insurance audits, rather than traditional Medicare audits.

To provide oversight of the MA program, CMS performs audits of MA plans through the Risk Adjustment Data Validation (RADV) program. RADV audits are designed to identify improper risk adjustment payments made to MAOs in situations where medical diagnoses submitted for payment allegedly were not supported in the beneficiary’s medical record, ensuring that MAOs do not game the system and claim more money than they should. Each year, CMS selects several MA plans for RADV audits to ensure that medical record documentation supports diagnoses submitted for risk adjustment. The RADV audit process generally requires MAOs and their providers to submit a sample of medical records to validate risk adjustment data, in addition to other requirements. In a recently issued final rule, CMS stated that it will only extrapolate audit findings beginning with the plan year 2018 RADV audit, and will not extrapolate audit findings prior to 2018. As MA plans are becoming increasingly popular amongst Medicare beneficiaries while at the same time drawing more scrutiny from government regulators, providers should make efforts to ensure compliance with MA program requirements, as well as be prepared to appeal any denials.

For over 35 years, Wachler & Associates has represented healthcare providers and suppliers nationwide in a variety of health law matters, and our attorneys can assist providers and suppliers in understanding new developments in healthcare law and regulation. If you or your healthcare entity has any questions pertaining to Medicare audits or healthcare compliance, please contact an experienced healthcare attorney at 248-544-0888 or

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