Thirteen months after over 500 comments were submitted in response to a CMS proposal, Medicare Part C (“Medicare Advantage”) plan sponsors and other stakeholders now know the methodology CMS will use in calculating payment errors through extrapolated estimates in audits based on risk adjustment data validation (“RADV”).  On February 24, 2012, CMS published the Final Payment Error Calculation Methodology for Medicare Advantage RADV Audits (the “Methodology”).  CMS states that the purpose of RADV audits is to determine whether diagnosis codes submitted by Medicare Advantage organizations can be validated by medical record documentation.  Those instances in which diagnoses cannot be validated through medical records will form the basis of the extrapolation.  CMS plans to audit approximately 30 Medicare Advantage contracts each year, which it estimates could amount to overpayment recoveries of approximately $370 million in the first audited year.  The Methodology states that CMS “expects that these contract-level audits will have a sentinel effect on the quality of risk adjustment data submitted for payment by MA organizations.”

Notwithstanding some prior audits and the position taken by CMS in its proposed methodology, audits for payment year 2011 will be the first time that CMS will conduct RADV audits using extrapolated estimates.  After contracts have been selected for RADV audits, enrollees will be sampled from each contract, and the results of medical record review of those sampled enrollees will be extrapolated to the universe of RADV-eligible enrollees.

To be considered “RADV-eligible,” Medicare Advantage enrollees must...

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