Insurers that face the largest potential Medicare Advantage payment clawbacks

The nation's largest insurers are gearing up for upcoming changes to Medicare Advantage risk adjustment rules that could collectively cost them up to $3 billion in returned payments, with Humana potentially facing the biggest penalties, Bloomberg reported Jan. 24.

The proposed rule from CMS first published in 2018 would use extrapolation in risk adjustment data validation (RADV) contract-level audits, beginning with 2011 and including all subsequent audits. A fee-for-service adjuster would not be applied to audit findings, which calculates a permissible level of payment errors.

To date, nearly every major insurer has been accused of or settled allegations of MA fraud from the federal government. Payers have been accused of exploiting the program through elaborate "upcoding" schemes that make patients appear sicker on medical records than they actually are — thereby leading to higher payments from CMS. Insurers have disputed these claims. 

After previous deadline extensions, CMS is expected to release its final rule around the RADV process on Feb. 1, which would determine if payers are overcharging for MA, and how much money the government should take back. According to the Medicare Payment Advisory Commission, 2023 overpayments could be as high as $16.2 billion.

Industry leaders have warned if the federal government does eliminate the FFS adjuster, payers will likely resort to litigation. 

Analysts told Bloomberg they expect the final rule to be "relatively aggressive," while The Wall Street Journal reported the rule could be watered-down. Regardless, the Journal said CMS "ultimately believes it is overpaying."

In August, AHIP submitted a letter to CMS opposing the proposed rule, arguing that it "fails to account for errors in FFS Medicare data." The trade group is also opposed to the rule applying retroactively.

"We reiterate our strong belief that CMS should withdraw the 2018 RADV proposal, close out prior audits, develop an appropriate FFS adjuster that reflects input from industry stakeholders, and apply any changes to the RADV audit methods prospectively so MA plans can incorporate them into bids," the letter said.

But according to Bloomberg, the final impact of the rule isn't clear yet. The range of impact on medical loss ratios could range from a 10-basis-point to 300 basis points, though the higher prediction has odds of about 1 to 2 percent.

The report said Humana may have the largest risk around clawbacks, with as much as 17 percent of its 2023 earnings facing scrutiny, before interest, taxes, depreciation and amortization — or $900 million. Most other insurers could face penalties on 3 percent of their 2023 earnings.

CMS estimated in 2018 that it could recover $650 million over a three-year period, with $400 million each following year.


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