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CMS Finalizes Long-Awaited Rule on Medicare Advantage RADV Audits
Friday, February 3, 2023

On January 30, 2023, the Centers for Medicare & Medicaid Services (CMS) finalized a rule related to Medicare Advantage (MA) Risk Adjustment Data Validation (RADV) audits that eliminates the so-called fee-for-service (FFS) adjuster from CMS’s methodology for extrapolating audit findings but limits extrapolation to plan years 2018 and beyond. For audits conducted between 2011 and 2017, CMS will only collect non-extrapolated overpayments identified. CMS has not yet conducted audits for 2018 or later. The final rule directly affects MA organizations (MAOs) and is also of interest to providers (particularly risk-bearing providers) and risk adjustment vendors.



CMS is required to risk-adjust the monthly capitation payments it makes to MAOs, based on the health status of an MAO’s enrollees, in order to eliminate any disincentives for plans to enroll individuals with greater healthcare needs and higher expected costs. CMS does so based on diagnosis codes that MAOs submit for each enrollee based on the enrollee’s encounters with healthcare providers.

CMS has conducted annual RADV audits of a limited number of MA plans. In RADV audits, CMS confirms that the risk adjustment conditions for a sample of the MAO’s enrollees are supported in medical records from the providers who treated the member. If they are not, CMS recalculates the payment to the MAO and recovers any differential.

The final rule addresses CMS’s ability and methodology for extrapolating the results of these RADV audits. In the final rule, CMS reversed an extrapolation methodology it had previously adopted in 2012.


CMS reversed the 2012 methodology’s inclusion of a so-called FFS adjuster. The statutory requirement for “actuarial equivalence” between MA and traditional FFS Medicare has been the subject of substantial policy action and litigation for more than a decade. The final rule did not rely on an analysis that CMS had initially published with the proposed rule. Rather, CMS cited two key legal bases for its decision not to include an FFS adjuster:

  • Actuarial Equivalence. The final rule asserts that the statutory requirement of “actuarial equivalence” applies to how rates are set but does not apply to collections of improper payments, relying on a 2021 decision by the US Court of Appeals for the District of Columbia Circuit. In that case, the Court distinguished between plan-identified overpayments from RADV audits and expressed no opinion on whether the actuarial-equivalence requirement requires an FFS adjuster in RADV audits.

  • Minimum Coding Pattern Adjustment. The Social Security Act requires the implementation of a minimum coding pattern adjustment to reduce risk scores of MA beneficiaries to account for differences in the coding patterns between MA and Medicare FFS. CMS asserts that the existence of the statutory coding intensity adjustment supports its conclusion that no FFS adjuster is required: “the only reasonable interpretation of the [Social Security] Act is that CMS would pay MAOs at those reduced rates . . . and enforce the longstanding documentation requirements through CMS’ audits.”


The final rule provides that CMS may collect extrapolated overpayments identified in either CMS RADV or US Department of Health and Human Services Office of Inspector General (OIG) audits for the 2018 plan year and later. CMS cites practical reasons for its decision not to extrapolate for years 2011through 2017, including that this approach will allow CMS to focus on conducting future RADV audits as soon as practicable after an MAO payment year concludes and will reduce a possible backlog of RADV audit appeals. CMS expects that this decision will better control the total number of active appeals that are submitted in the first few years following finalization of the rule.

Still, the rule will apply to four already-completed payment years (2018 to 2022). CMS asserts that the rule is not “retroactive” because the medical record documentation requirement remains unchanged: proper medical documentation is required for diagnosis codes to be deemed valid. CMS also explains that the documentation requirement applies equally whether CMS calculates audit recoveries on an enrollee-by-enrollee basis or uses a statistically valid sample of enrollees to extrapolate results. CMS states that even if the methodology were determined to be a retroactive application of policy, retroactive application is appropriate and permissible under the statute because it is necessary to comply with statutory requirements and doing so is in the public interest.

The final rule estimates that applying extrapolation to audit findings beginning with the 2018 payment year audits will produce more than $428 million in net recovery. The total estimated recovery amount between 2023 and 2032 is $4.7 billion.


  • Contract-Wide Versus Sub-Cohort. The final rule gives CMS authority to use any statistically significant sampling and extrapolation methodology. This could include contract-wide samples or “sub-cohort” samples (e.g., beneficiaries with an assigned diabetes hierarchical condition code, with extrapolation to the population from which the sample was drawn, such as all enrollees in the sub-cohort in that payment year. The specific methodology will be announced via sub-regulatory guidance and may change from audit to audit. CMS asserts that this approach will allow it to spread its audit resources across a wider range of contracts while focusing its audit efforts where there is greatest risk of overpayments.

  • Selection of MA Plans to Audit. CMS does not specify how many MA plans will be selected for each year’s RADV audit. The rule’s preamble states that CMS will select MA plans that “through statistical modeling and/or data analytics, are identified as being at highest risk for improper payments.” CMS noted that this approach was previously recommended by the US Government Accountability Office.

  • OIG Audits. When OIG performs audits, it refers its results to CMS for collection and appropriate action, rather than collecting directly. According to the preamble, the rule also applies to audits conducted by OIG. Thus, CMS will not extrapolate audits performed by OIG for plan years prior to 2018, but the rule states that CMS may extrapolate and recover amounts based on OIG audit results for 2018 and later. CMS will collect enrollee-level overpayments identified in OIG audits.

  • Process for Pending Audits. CMS intends to finalize and make recoveries for the currently pending RADV audits on a rolling basis beginning April 1, 2023. These audits will not be extrapolated, as all pending RADV audits are for years prior to 2018.

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