Every healthcare payer must understand the risk adjustment data validation (RADV) to ensure regulatory compliance and avoid legal troubles. But with the Final Rule published in 2023, payers are still adapting – and it can be difficult to know exactly how the process works or what is required of them.
This article provides a complete overview of RADV, helping healthcare payers understand exactly how it impacts them – as well as making sense of the Final Rule will affect them over the coming decade.
Risk Adjustment Data Validation (RADV) is an audit process conducted by the Centers for Medicare & Medicaid Services (CMS) to verify the accuracy of risk adjustment payments made to Medicare Advantage (MA) organizations. It occurs after the final deadline for risk adjustment submissions and ensures that diagnosis codes align with the actual health status of beneficiaries.
There are four basic steps to this process:
Partial or inaccurate risk adjustment has a material effect on healthcare providers, payers, and the CMS. One study estimates that Medicare Advantage (MA) risk scores may be inflated by up to 20%, with overpayments exceeding $75 billion – which harms all parties in different ways.
The RADV process is designed to protect the integrity and accuracy of the Medicare program, ensuring both under-and-overpayments are identified and resolved. This promises multiple benefits:
Ultimately, RADV helps to make Medicare Advantage fairer and more equitable – but it is still evolving.
The CMS published its Final Rule on Medicare Advantage RADV in 2023, with two key takeaways:
One of the most significant changes introduced in the RADV Final Rule is the implementation of extrapolation for audit findings. Starting with Payment Year (PY) 2018, CMS can project errors identified in sampled medical records across an entire MAO contract. This method allows CMS to recover overpayments on a larger scale, addressing systemic inaccuracies rather than limiting recoupments to the audited sample. By applying statistical extrapolation, CMS aims to enhance its ability to safeguard taxpayer funds and ensure accurate payments within the Medicare Advantage program.
Another key provision of the Final Rule is CMS’s decision to eliminate the Fee-for-Service (FFS) Adjuster. Previously, this adjustment accounted for differences in documentation practices between traditional Medicare and Medicare Advantage. However, CMS determined that the FFS Adjuster was unnecessary and introduced complexity without improving audit accuracy.
By removing this adjustment, CMS has streamlined the RADV process, ensuring consistency and fairness in how audit findings are evaluated and overpayments are calculated. This change aligns with federal court rulings and reinforces CMS’s commitment to maintaining transparency and program integrity.
However, the Final Rule has proven highly controversial among payers. Early estimates suggest the new regulation will allow the CMS to recoup $4.7 billion from payers over the next decade. This comes at a moment payers are particularly vulnerable, with the effective MA rate decreasing for the first time in a decade and Star ratings in decline – which explains the strong response from many high-profile payers.
Humana – America’s fourth-latest medical insurance firm – filed a lawsuit against the CMS that seeks to invalidate the new regulations, and experts expect other payers to follow. The lawsuit alleges that the Final Rule will cause severe revenue loss for Humana and even small errors will be penalized – despite RADV audits having a clear margin of error.
Perhaps more strikingly, initial efforts by the DOJ to have Humana’s case dismissed have been denied. This gives payers hope that the worst impact of the Final Rule will be mitigated – but it shouldn’t distract from important work that must be done.
Regardless of the New Rule’s fate, it highlights important questions around the reliability and accuracy of medical documentation. The OIG estimates that 69% of HCC codes submitted for Medicare Advantage can’t be supported by documentation – and payers must spearhead a movement to solve that problem.
HCC Assistant is an innovative software solution that helps healthcare payers avoid RADV risks and exposures. The tool uses natural language process (NLP) to centralize structure and unstructured medical data – helping to improve documentation and make HCC coding decisions easier to support.
Want to explore how it could help your organization stay compliant?
