The Centers for Medicare & Medicaid Services (CMS) was very busy last week! On Jan. 30, CMS issued its long-awaited Risk Adjustment Data Validation (RADV) Final Rule. Two days later, it published its Advance Notice of Calendar Year (CY) 2024 Capitation Rates for Medicare Advantage (MA) Plans. Although the Final Rule and the Advance Notice directly apply to the entities that sponsor Medicare Advantage plans, providers that participate in Medicare Advantage plan networks need to understand how the Final Rule and the Advance Notice could impact their network participation agreements.

Section 1853(a)(1)(C) of the Social Security Act sets forth the requirement that CMS risk-adjust payments made to Medicare Advantage Organizations (MAOs), to account for differences in health status among enrolled beneficiaries. Risk-adjusted payments are based on medical diagnoses submitted by the MAOs, which must be supported in the enrollees’ medical records to ensure accurate payment. The goal of risk adjustment is to ensure that accurate monthly capitation payments are made to MAOs based on the health status and demographic characteristics of their enrolled beneficiaries. Payments are less for MAOs with healthier enrollees as they should have lower health care costs, and more for MAOs with less healthy enrollees and more with chronic conditions, who are expected to incur higher health care costs.

The RADV Final Rule addresses instances where MAOs received more than they otherwise should have received because the medical diagnoses submitted for risk adjustment payment were not supported in the enrollee’s medical record. To determine those instances, the Final Rule authorizes CMS to extrapolate RADV audit findings beginning with payment year 2018. The RADV Final Rule also confirms that CMS will not apply a fee-for-service adjuster in the audits to account for any effect of erroneous diagnosis codes in the data from Medicare Parts A and B that are used to calibrate the MA risk adjustment model. The fee-for-service adjuster was previously utilized to calculate a permissible level of payment error and limit RADV audit recovery to payment errors above that level.

The Advance Notice is a proposal. CMS expects to publish the final 2024 rate announcement by April 3. In the Advance Notice, CMS proposes a rate increase of 2.09% in 2024, and a 1.24% decline in payments based on changes to the Star ratings system (2023 Star ratings impact quality bonus payments in 2024). In addition, CMS proposes shifting MA's diagnosis coding from ICD-9 to ICD-10 in 2024. This would result in the removal of 2,269 unique codes from the Hierarchical Condition Category (HCC) model, including major depressive disorder, diabetes with chronic conditions, vascular disease, rheumatoid arthritis, and inflammatory connective tissue disease. CMS also asked for feedback on potential measure updates, new measure ideas, and the addition of measures to align with other CMS programs. This could pave the way for what CMS referred to as a “Universal Foundation” of quality measures, which is a core set of measures that are aligned across programs.

For providers that participate in MA plan networks, the changes in the Final Rule and Advance Notice may filter down to them in several ways. For example:

• MAOs downstream most regulatory requirements to their network providers, including requirements related to RADV audits. Providers should understand their contractual obligations under their provider agreements and the impact that RADV audit adjustments may have on their payments. These contractual obligations could be a source of disputes in the coming years.

• In a value-based payment system, the coding extracted from documentation determines whether a physician is properly compensated for managing patients with chronic diseases. The more accurate the risk scores, the more accurate the benchmark for expenses, and the more accurate the physician’s reimbursement. MAOs who are penalized by CMS for inaccurate coding and incur negative payment adjustments will likely seek repayment from their contracted providers.

• The proposed “Universal Foundation” could help to solve a lot of the frustration with value-based models in general, lessening the burden of having dozens of quality measures across payers and instead focusing on a core set of measures. Many providers do this anyway and base compensation and bonuses on performance under a subset of standard measures.

• Patient engagement is an important component in this era of patients as consumers. Heightened attention to coding should sharpen providers’ focus on annual checks to identify patients with unreported chronic conditions and ensuring follow up on these patients to better manage and recapture their chronic conditions. Further, many plans offer a variety of supplemental benefits such as access to healthy food and utility assistance, gaps which we now understand can greatly impact a patient’s overall health.

The Final Rule is controversial. It would not be surprising to see litigation ensue.

The recent CMS activity is a good reminder to providers to pay careful attention to the terms of their payer contracts and their strategies for negotiation. This will help to ensure financial stability for providers as the healthcare delivery continues to transform and traditional reimbursement models continue to evolve.