The D.C. Circuit Court overturned UnitedHealthcare’s victory in the lower court that resulted in vacatur of the Medicare Advantage 60-day overpayment rule (the Overpayment Rule). Last week, the D.C. Circuit Court held that the actuarial-equivalence requirement does not apply to the Overpayment Rule’s statutory-refund obligation. This decision is also a setback to Medicare Advantage plans’ use of actuarial equivalence as a defense to FCA liability. The Circuit Court also denied UnitedHealthcare’s claim that the Overpayment Rule violates the “same methodology” requirement and held that the Overpayment Rule is not arbitrary and capricious.

Pursuant to the Patient Protection and Affordable Care Act, 42 U.S.C. §§ 1320a-7k(d)(1), (2), Medicare Advantage organizations must report and return Medicare Advantage overpayments to CMS within 60 days of identifying the overpayments. Failure to report and return a known overpayment within the 60 days may give rise to a violation of the FCA. CMS promulgated the Overpayment Rule which clarifies that if a Medicare Advantage plan submits a diagnosis for payment that ends up being invalid because there is not a medical record to support it then that submission is considered an overpayment that must be reported and returned to CMS within 60 days.

UnitedHealthcare argued that the Overpayment Rule violated the actuarial equivalence standard set forth in the Medicare statute. The Medicare statute requires that when CMS adjusts its monthly, per-capita payments to Medicare Advantage insurers based on certain risk factors that there must be “actual equivalence” between the Medicare Advantage insurer’s population and the traditional Medicare beneficiary population. UnitedHealthcare claimed that the calculations were not identical because the Medicare Advantage risk calculations relied only on supported codes backed by medical documentation and the traditional Medicare calculations relied on supported and unsupported codes, resulting in different payments for identical beneficiaries.

The D.C. Circuit Court rejected UnitedHealthcare’s argument, reasoning that the actuarial-equivalence requirement does not apply to the overpayment-refund obligation or to the Overpayment Rule. The court performed a statutory review and found no overlap or cross-reference between the actuarial equivalence standard and the overpayment-refund obligations. The D.C. Circuit Court also noted that even if the actuarial-equivalence requirement did relate to the overpayment-refund requirement, UnitedHealthcare did not challenge the risk-adjustment model, nor provide evidence that the model resulted in an imbalance between Medicare and Medicare Advantage payments. In fact, the court stated that traditional Medicare would probably underreport diagnoses because Medicare beneficiaries are paid based on services, not diagnoses. Furthermore, the court stated that the Overpayment Rule and overpayment-refund requirement do not require Medicare Advantage insurers to audit their data as assumed by UnitedHealthcare, but only to report and refund known overpayments. The court also pointed out that if Medicare had unsupported codes then that would raise payments, not lower payments to Medicare Advantage organizations, because the base rate is based on CMS’s traditional Medicare expenditures.