RADV—The Future of Reimbursement Accuracy

The intention for developing RADV audits was to develop a checks and balances to ensure reimbursement payment accuracy for Medicare Advantage Organizations (MAOs).

There’s a history of CMS addressing payment accuracy in the Medicare space that dates back to the 80’s with the prospective payment system, PPS, and in the late 90’s with the Balanced Budget Act. The first RADV audit for MAOs wasn't performed until 2007. The initial audits determined that MAOs were being significantly overpaid which justified the 2011 proposed rule that suggested overpayments should be extrapolated, in other words, overpayments should be returned to the Centers for Medicare and Medicaid Services (CMS).

Over the years, CMS has explored different ways to determine the error rate of MAO overpayment. In the most recent 2023 Final Rule, CMS has released their go-forward plan to extrapolate beginning in payment year 2018, however, no specific methodology for error rate determination has been defined, nor has a commencement date been announced. Plans can expect to be notified prior to extrapolation so they can forecast.

Health plans need to implement a strong risk mitigation program to ensure reimbursement accuracy.

Tune in to this episode to discover:  

Host: Today, we’re talking about RADV—The Future of Reimbursement Accuracy with guest expert Amanda Proctor. Amanda has over 13 years of experience in risk adjustment coding and specializes in risk mitigation, coding quality, and education. She holds multiple certifications in coding and is an AAPC-approved instructor. Welcome Amanda.

Amanda: Hi, thanks, it’s great to be here.

Host: Amanda, The RADV Final Rule was effective starting February 2023. But before we get into that, I think it would be helpful to understand the history behind RADV. Risk Adjustment Data Validation. Tell us a little bit about how—and why it originated.  

Amanda: Yeah, the intention for developing RADV audits was to develop checks and balances to ensure reimbursement payment accuracy. There’s a history of CMS addressing payment accuracy in the Medicare space that dates back to the 80s with the prospective payment system, PPS, and in the late 90s with the Balanced Budget Act. But, the first year for a RADV audit for MAOs, Medicare Advantage Organizations, wasn't performed until 2007. That’s when CMS conducted the audit on 5 MA contracts. They also did a dual audit that targeted 32 MA contracts. That initial audit revealed that MAOs were being significantly overpaid to the tune of over 13 million for that period. This initial audit period justified the development of the RADV rule to recoup those overpayments. So, in 2011, there was a proposed rule that suggested any errors in payment should be extrapolated—meaning CMS would take back the overpayment. During this time, there was an open forum, so to speak, where plans and those in the industry could raise areas of concern and offer input on the development of the final rule. The proposed rule recommended going back to payment years 2011 through 2017 based on past RADV audits and extrapolating based on the error rate.  

Host: In lay terms, CMS was going to take the reimbursement money back?

Amanda: Exactly.  

Host: How were they going to determine the error rate?  

Amanda: In 2012, CMS proposed there should be an adjustment for Medicare Advantage capitated payment rates to be actuarily equivalent to the payments that are made for traditional fee-for-service Medicare.  They proposed to do this with a fee-for-service adjustor for RADV audits, which would calculate an allowable error rate based on the error rate seen in typical Medicare fee-for-service. That would provide a cushion for Medicare Advantage Organizations to have in their payment rates. Now, CMS went back and forth with this idea for a while. Then, in 2018, CMS stated in the proposed rule that the adjustment between fee-for-service and MA did not have an actuarial equivalent and did not lead to systematic payment errors. Ultimately, in the most recent final rule, from February 2023, CMS decided to eliminate the fee-for-service adjuster, and they announced that extrapolation would begin with payment year 2018 and forward. In my opinion, this is pretty generous, not going back to 2011. Now, no specific extrapolation methodology was defined; CMS stated that it just has to be a statically significant method. Also of note: while CMS declined to identify any particular methodology, they did mention that they reserve the right NOT to extrapolate RADV results depending on the circumstances of the particular audit. CMS did say that they will notify health plans prior to the extrapolation so plans can forecast.  

Host: So there’s no set date for when the extrapolation will begin?  

Amanda: Right. As of now, we only know that they will begin with payment in 2018. But when they’ll begin is still unknown. CMS stated the recoupment will happen on audits conducted for payment year 2018. In the final rule, CMS stated they were codifying-in-regulation the requirement that MAOs remit improper payments identified during RADV audits in a manner specified by CMS.

Host: What variables influence the error rate determination?  

Amanda: The variable that influences the error rate is HCC diagnoses. CMS then estimates the payment error rate by defining the difference between what was actually paid to the MA health plan, based on those submitted HCCs, and the “accurate, or actual” amount that CMS believes they would have paid based on RADV-validated HCCs. The current Part C IPM audit, which determines the national Part C error rate, bases the error rate on overall HCCs audited. However, Commercial RADV categorizes its error rates based on a ranking of diagnoses that typically fall within a high, medium, or low probability of error. At this point, It appears they are going to stay with an overall level of payment error and not deploy the same ranking system used in the Commercial RADV audit.

Host: Going back, can you define extrapolation?  

Amanda: Certainly, it’s an audit sample on the health plan’s overall membership and error rate. If the sample error rate is 20%, then we’ll assume the error rate across the health plan is 20%.  

Host: Let’s get to the root cause of all this: Why have MA plans been overpaid? What’s causing the reimbursement inaccuracy to begin with?

Amanda: Well, it’s widely known that Medicare Advantage plans have been overpaid due to up-coding.  

Host: So, what changes need to be made to prevent up-coding?  

Amanda: Well, in my opinion, plans need a strong compliance and QA process to mitigate up-coding potential. Whether that’s an internal program or through a vendor—plans have got to have the opportunity to perform mitigation audits and reviews on new and upcoming trends with continuous review of OIG work plans. Plans must have programs in place that look critically at what CMS and HHS are looking for in terms of high risk and scrutinizing the HCCs that have been historically over-coded. This means having internal coding guidelines to make sure you have the proper documentation to support a diagnosis code, should it ever be selected for an audit.  

Host: These mitigation activities, is this a part of prospective programs?  

Amanda: It’s part of both prospective and retrospective programs. They work in tandem with one another. What we find on the risk mitigation side, is that discussing the trends across teams in an interdisciplinary manner—for both prospective and retro—this ensures practices and guidelines are continually updated.

Host: What’s an example of up-coding, and how is that problematic to calculating the correct reimbursement?  

Amanda: Allowing coding from the past medical history or a problem list—this is where things get troublesome. Because the question that needs to be answered is: was the diagnosis pertinent to the member’s visit. Obviously, we want the individuals who have chronic conditions to be managed on an ongoing basis, but we want to also ensure that the diagnosis was relevant to the visit. Capturing diagnoses solely from the past medical history or problem list is where health plans can run into trouble with audits.  

Host: So, it sounds like there needs to be changes and education at the provider level.

Amanda: Yes. Provider education is critical here. There needs to be a perceptual shift in the mindset of documentation—moving away from a fee-for-service mindset towards holistically looking at the patient status—versus substantiating a service. Let me explain. In traditional fee-for-service, the goal is to get a service paid for. Ultimately, the provider needs to document a diagnosis to substantiate and match the service being billed. Why is the test or service needed? That’s the question that needs to be answered. But Medicare Advantage flips the switch. Here, the diagnosis needs to be justified. Why was this diagnosis made? What clinical evidence or tests validate the diagnosis?  

And then, well-rounded provider education that’s cyclical—meaning the plan receives the audit, provides individual feedback to the provider, gives them time to implement changes, and then, the plan conducts a re-review to measure the effectiveness of the provider education.  

Host: Is this process for provider education you just outlined exemplary of how most plans operate, or is it a more distinguished method?  

Amanda: Most health plans are probably not running provider education this way because it takes extra time. That re-occurring audit may not be profitable on the front end or directly tied to profit. So it can fall by the wayside. However, a more successful mindset is that you’re going to pay at some point, whether it’s on the front end or back end. And if you wait to pay on the backend, you’re going to be a candidate for extrapolation.

Host: What changes need to occur to increase reimbursement accuracy?

Amanda: Industry-wide changes are being made by shifting the focus and mindset towards prospective and concurrent review. There’s always going to be a place for retrospective review… but documenting as you go has proven far more effective and enables reimbursement accuracy.  

Host: How will plans deal with the potential loss of paying CMS back?

Amanda: Yeah, as you can imagine, this is what’s everyone’s mind. This will likely impact smaller health plans the most and also the population it’s trying to serve. If the expectation is that this is going to happen with a zero-tolerance policy for any kind of error, which is what it seems like with the removal of the fee-for-service adjuster. Then, health plans are going to have to account for the potential impact of medical reimbursement loss, and ultimately, we may see this trickle down to the member level.  

Host: So, what’s the best strategy moving forward?  

Amanda: Absolutely. The best way to move forward is to incorporate a well-rounded audit program. And even if your organization doesn’t have the ability to stand up an internal program, it’s critical to contract with vendors to perform those risk mitigation duties. When I say a well-rounded audit program, I mean retrospective, concurrent, and prospective review of documentation. Whether the organization has providers coding, have their own coders or outsource coding—they must ensure that standards are being met. This involves quality assurance audits, provider eduction that’s completed post-audit, and post-education follow up to ensure the education  is being absorbed and implemented. This is the key to each plan’s success moving forward.  

Host: Amanda, it’s been great talking to you today. You’ve provided some incredibly valuable information that is going to provide more certainty for plans moving forward.  

Amanda: Yeah, anytime.  

Host: Thanks to our listeners for tuning in. If you liked this episode, follow and rate the show on Apple, Spotify, or other major podcast apps and share it with your colleagues on LinkedIn.