Providers Billing to Medicare Advantage Should be Aware of a Recent Humana Lawsuit Against CMS – Humana’s Stated Concerns May Roll Downhill to Providers

Providers that bill Medicare Advantage or Medicare Part C (“MA”), and most particularly capitated provider groups, should carefully watch a recent lawsuit filed by Humana, Inc. and Humana Benefit Plan of Texas, Inc. (“Humana”) against the Centers for Medicare and Medicaid Services (“CMS”)[1].  The  lawsuit’s outcome may have a “secondary impact” on MA providers in the form of increased Medicare Advantage Organization (“MAOs”) audits and claw-backs.

1. Background to the Litigation – The MA Risk Adjustment Program and RADV Audits

MA is a program through which CMS pays private MAOs to administer federal dollars earmarked to insure Part C eligible members. This payment system is a capitated, risk adjusted model that pays the MAOs on a per member per month (“PMPM”) basis based upon the projected health status of each insured. The estimated prospective health status of the insureds, in turn, is determined using the CMS-HCC actuarial model. This model assigns a risk adjustment factor or risk score to each insured based upon diagnosis codes submitted to the federal government by the MAOs. These diagnosis codes are, in the first instance, sourced from physician-patient encounters and must, by law, be supported by the patient’s medical chart.  Thus, the diagnosis codes contained in patient charts and billed by providers to MAOs ultimately impact the PMPM payment paradigm—the worse the projected health status of the patient based on those codes, the higher the PMPM payments in subsequent periods (and vice versa).

A bedrock  statutory requirement in MA is the need to maintain “actuarial equivalence” as between MA and Medicare Parts A and B, i.e., MA and Medicare Fee-For-Service (“FFS”)[2]. See 42 U.S.C. § 1395w-23(a)(1)(C)(i). The actuarial equivalence principle recognizes that there is an inherent difference between the comprehensiveness of diagnosis coding in MA versus the less intensive diagnosis coding more typical of providers/carriers working within traditional FFS Medicare. In essence, because a patient’s risk adjustment factor or risk score – which is determined by a complex actuarial model that uses diagnosis coding as its basis – is tied to how much an MAO or an MA capitated provider gets paid, there is a greater incentive within the MA space to code more intensively and comprehensively than there is in FFS Medicare. This coding intensity difference creates a statistically significant issue that can throw the “actuarial equivalence” principle off balance.

As a result, CMS applies the so-called “Coding Intensity Adjustment” factor that, as of this writing, reduces MA patients’ risk scores by approximately 5.9%, thereby reducing payments by CMS to MAOs on the “front end” of the MA system. It is Humana’s position that, in the same way the Coding Intensity Adjustment factor reduces payments on the front end, a similar factor – the so-called Fee-For-Service Adjuster (“FFS Adjuster”) – ought to be applied to government MA audit liability on the back end, reducing audit liability in a fashion that would bring it closer to actuarial equivalence with FFS Medicare.

Humana filed suit against the government to void as unlawful the Final Rule issued by CMS in February of this year[3], which definitively states that no FFS Adjuster is necessary, leaving MAOs to feel the full, unadjusted impact of a risk adjustment data validation audit (“RADV”) without mitigation. The purpose of government-conducted RADV audits is to determine whether diagnosis codes within a given MAO’s MA contract are supported by corresponding medical records. Such audits, which are subject to contract-wide extrapolation, can result in billions of dollars in government claw-backs.

How will this impact providers?  Given the above, MAOs like Humana can be expected to attempt to offset their losses arising from this Final Rule by more intensely auditing Part C Providers and more vigorously pursuing claw-backs resulting from those audits.

2. Humana’s Claims

A large percentage of Humana’s Complaint consists of a historical overview of CMS’ consideration of the advisability of applying the FFS Adjuster. Over the last decade, notes the Complaint, CMS has toyed with the idea of lessening the financial impact of RADV audits on MAOs by applying a coefficient or methodology that would account for the inherent difference in diagnosis coding intensity in MA versus traditional fee-for-service Medicare. Specifically, CMS considered whether it ought to reduce the value of claw-backs by a factor that would reflect and offset this coding intensity differential,[4] which would be a boon to MAOs such as Humana. The FFS Adjuster was supposed to be this reducing factor—helping to reduce the size of RADV-based government claw-backs.  But the Final Rule has effectively foreclosed any possibility of an FFS Adjuster ever being implemented.[5]

Humana’s suit is a direct response to this determination, and it alleges that the government’s seeming about-face on the necessity of the FFS Adjuster was an “arbitrary and capricious” violation of the Administrative Procedure Act (“APA”) governing agency decision-making. Billions of dollars in reduced claw-backs thus hang in the balance while Humana’s suit is pending and, in the absence of the relief Humana seeks, MAOs may begin (and likely already have begun) more intensely scrutinizing MA diagnosis coding from providers billing to MA in an effort to effectively downstream future claw-backs to providers as a hedge against future RADV audit liability.

How Frier Levitt Can Help

The implications of Humana’s suit, combined with the complexities of the MA billing model, highlight the need for providers to be both informed and prepared.  Part of that preparation starts with hiring competent healthcare counsel. Frier Levitt has significant experience working in the Medicare Advantage risk adjustment space. If you are a provider or plan undergoing an audit or facing the prospect of an audit by an MAO, contact Frier Levitt for a consult.

[1] Humana, Inc. et al. v. Becerra et al. (Dkt. No.: 23-cv-00909)

[2] See 42 U.S.C. § 1395w-23(a)(1)(C)(i).


[4] Notably, and as pointed out in Humana’s suit, there is a coding intensity adjuster already applied – but this adjuster is applied on the front-end/payment side of the program – not the backend/audit side. Effectively, CMS lowers PMPM payments to MAOs by a factor designed to make them consistent with what payments would have looked like had MAO coding intensity been reduced to an amount reasonably consistent with coding practices in traditional fee-for-service Medicare.

[5] Specifically, Humana claims that the Final Rule ran afoul of  APA provisions 5 U.S.C. § 706(2)(A), (C), and (D)