In 2023, more than one-half of eligible Medicare beneficiaries are enrolled in a Medicare Advantage (MA) plan. In addition to the annual rulemaking process for traditional Medicare reimbursement, providers need to pay attention to the Centers for Medicare & Medicaid Services’ (CMS) regulation of Medicare Advantage Organizations (MAOs) and the potential impact on provider/MAO interactions, including claims submission and reimbursement.
This spring, CMS issued two MA final rules in addition to the annual MA rate announcement:
- MA Risk Adjustment Data Validation (“RADV”) Program Final Rule
- Calendar Year 2024 MA Capitation Rates and Part C and Part D Payment Policies (“2024 Rate Announcement”)
- Contract Year 2024 MA Policy and Technical Changes Final Rule (“MA Final Rule”)
MA RADV Program Final Rule
An MAO receives an overpayment when the MAO inaccurately represents its members’ health status and thus receives from CMS capitated payments in excess of anticipated costs of providing services for those members. CMS measures members’ health status using Hierarchical Condition Categories (HCCs), which are primarily driven by the diagnosis codes listed by providers on claims submitted to MAOs for payment. Even slight variances in providers’ coding, such as assignment of more specific diagnosis codes, can have a significant impact on the capitation payment made to the MAO.
CMS created the RADV program to recover overpayments to MAOs resulting from the inclusion of diagnosis codes on claims not supported by members’ medical records. Presently, CMS audits approximately 5% of MAO plan contracts each year. For each contract, CMS randomly selects a sample of members for audit. The MAO then has to produce to CMS medical record documentation from providers to support the HCCs included in each member’s risk score profile.
Historically, CMS has limited the overpayment amounts due from an MAO to those overpayments discovered during the RADV audit, i.e., CMS has not extrapolated the audit findings to all MAO plan members. Under the new rule, however, CMS will extrapolate RADV audit findings beginning with the Payment Year (PY) 2018. (Overpayment recoveries will be limited to the PY under the RADV audit, meaning the error rate for one PY will not be applied to other PYs.) There will be no impact on RADV audits related to PY 2011 – 2017. PY 2018 audits are not expected to start until at least 2025.
In commenting on the proposed rule, MAOs argued CMS should apply a Fee-for-Service (FFS) adjustment factor in RADV audits. According to MAOs, FFS claims include some degree of upcoding, and RADV audits should focus only on excess upcoding in MA plans. CMS, however, rejected this argument in the final rule.
CMS stated in the final rule that any extrapolation methodology it uses for RADV audits will be focused on MAO contracts that, through statistical modeling and/or data analytics, are identified as being at the highest risk for improper payments. CMS, however, did not explain how it will determine this “highest risk” level. While not required, CMS will disclose its extrapolation methodology to MAOs, providing them with information sufficient to understand how CMS extrapolated the RADV payment error.
CMS estimates it will recover approximately $479 million from MAOs per year beginning with PY 2018, totaling $4.7 billion between 2023 through 2032. CMS also hopes the new rule will incentivize MAOs to implement additional internal audit processes to minimize potential overpayment liability.
All providers are likely to see a higher number of record requests from MAOs as a result of the RADV Program Final Rule. Additionally, providers in value-based contracts with MAOs may be impacted by the new rule in three ways:
- Risk adjustment contract language. In some value-based arrangements, MAOs may include language holding the provider accountable for supporting documentation on members selected for a RADV audit. Providers should review this language carefully, if applicable. MAOs may impact the provider’s risk pool calculations if MAOs are required to refund overpayments identified during RADV audits, even if the provider’s medical records adequately supported the reported diagnosis codes.
- Risk pool computations. Providers should review their risk pool formulas for the accounting treatment related to RADV overpayments, if any. Since RADV audits are conducted on PYs several years later, providers should be aware if the MAO can reduce current or future settlement amounts. Given the additional RADV audit risks that MAOs will bear in the future, these potential overpayments could have a significant impact on risk pool settlements.
- RADV audits limited to “high risk” coding. Providers in value-based MA contracts should limit any financial exposure to only the codes that were subject to RADV audits.
2024 Rate Announcement
In general, capitation rates paid by CMS to MAOs are the product of the benchmark rate multiplied by the risk score (discussed above). The benchmark rate is developed using Medicare FFS spending in each U.S. county. CMS estimates capitation rates will increase in 2024 by 3.32% overall, but individual MAO rates will vary based on the MAO’s star ratings, mix of diagnoses, and risk score trends.
Earlier in the year, CMS had announced a significantly lower overall rate increase, due in large part to its plan to update the risk adjustment model used to calculate risk scores. Specifically, CMS intended to move from the 2020 Risk Adjustment (RA) Model that uses ICD-9 diagnosis codes to the 2024 RA Model that uses ICD-10 codes. Also, the new model re-weights several HCCs based on updated claims data.
In response to concerns expressed by MAOs, CMS elected to phase in the use of the 2024 RA Model over three years. For 2024, risk scores will be calculated 67% based on the 2020 RA Model and 33% based on the 2024 RA Model. For 2025, the 2020 RA Model will be reduced to 33% and then phased out in 2026.
CMS’s transition to the 2024 RA Model will have significant impacts beyond the capitation payments to MAOs. Analyses comparing the application of the current model and the 2024 RA Model to the same patient population could show significant reductions in HCC scores under the updated model. For example, shared savings revenues are adjusted based on the patient population’s HCC score: A higher score translates to higher revenue, making it easier to generate savings. If the 2024 RA Model generates a lower HCC score, therefore, it will reduce the potential savings earned by providers participating in shared savings arrangements. The same is true for episodic payment models and population-based payments. We are closely watching the adoption of the 2024 RA Model and refining tools to help providers understand its impact and plan their responses.
MA Final Rule
The MA Final Rule addresses four major topics:
(1) prior authorization
(2) health equity
(3) behavioral health
(4) MAO marketing restrictions
Providers’ discharge planning, utilization management, and revenue cycle teams need to be familiar with these changes, all of which favor providers and members.
Prior authorization (PA). According to CMS, providers submitted approximately 35 million PA requests in 2021, of which approximately 2 million were fully or partially denied by MAOs. Providers appealed about 10% of those denials and were successful in more than 80% of those cases.
Concerned that MAOs’ PA practices are limiting beneficiaries’ access to medically necessary care, CMS imposed four new requirements. First, MAOs must follow clinical criteria established in national coverage determinations, local coverage determinations, and other general coverage and benefit conditions included in Traditional Medicare. This includes coverage criteria for inpatient, inpatient rehabilitation facility, and skilled nursing facility admissions and home health services.
Specifically, MAOs must provide coverage for admissions for surgeries on the inpatient only list and admissions meeting the two-midnight benchmark. MAOs, however, are not bound by the two-midnight presumption applied for medical review purposes.
Second, an MAO may establish internal coverage criteria if—and only if—coverage criteria are not fully defined under Traditional Medicare. Any such MAO criteria (a) must be based on current evidence in widely used treatment guidelines or clinical literature; (b) must be publicly accessible (including summary of evidence); and (c) must provide clinical benefits highly likely to outweigh any harm, including delayed or decreased access to care.
Third, an MAO now is required to establish a Utilization Management Committee led by the MAO’s medical director to review all PA-related policies annually. Finally, an MAO’s PA approval now must remain valid for as long as medically necessary to avoid disruptions in care, and an MAO must provide a minimum 90-day transition period when a member undergoing treatment changes coverage.
The MA Final Rule does not impose new procedural requirements, e.g., specific turn-around time on provider PA requests. These matters were addressed in a separate proposed rule released in December 2022, which would apply to commercial payers as well as MAOs. Presently, there is no timeline for publication of the final rule on procedural requirements.
Health equity. CMS will be launching a new Star Rating health equity index to be based on 2024 and 2025 data and applied to 2027 Star Ratings. This index, which will replace the current reward factor for consistently high performance, will summarize an MAO’s performance among beneficiaries with specified social risk factors (SRFs) across multiple measures into a single score. The initial SRFs will focus on members who receive low-income subsidies, are dual eligible, and/or are disabled.
Other new health equity-related requirements for MAOs include (1) ensuring services are provided in a culturally competent manner to an expanded list of populations; (2) including in provider directories providers’ cultural and linguistic capabilities (including languages offered by provider or skilled medical interpreter); (3) identifying and offering digital health education to members with low digital health literacy; and (4) incorporating activities to reduce disparities in health and healthcare into the MAO’s overall quality improvement program.
Behavioral health (BH). To improve members’ access to BH services, CMS is imposing several new requirements on MAOs. First, an MAO must ensure that BH wait times do not exceed 30 business days for routine and preventive care, seven business days for services requiring medical attention, and immediate care for emergency and urgent services.
Second, an MAO must demonstrate network adequacy for clinical psychology and clinical social work in addition to current requirements for psychiatry and inpatient psychiatric facility services. Third, CMS has clarified that “emergency medical condition” includes both physical and BH conditions, meaning an MAO cannot impose any PA requirements on services to diagnose or treat such condition and that the medical necessity of such services will be based on the “prudent layperson” standard.
Marketing restrictions. Beginning with 2024 enrollment, MAOs will be subject to 22 new restrictions and requirements relating to marketing and enrollment activities. These include a prohibition on advertisements that do not mention a specific MAO plan name and an expanded role for MAOs in monitoring agent and broker activities. CMS crafted these new restrictions and requirements based on complaints received from members and MAOs.
If you have questions regarding managed care contracting, our executive contacts would be happy to assist. Contact them at the e-mails below or by calling (800) 270-9629.
