On April 30, 2014, the Centers for Medicare and Medicaid Services (“CMS”) issued a proposed rule to update payment policies and rates for inpatient hospitals (the “Proposed Rule”) that includes a provision with significant future implications for sponsors of Medicare Advantage (“MA”) plans in the area of fraud and abuse oversight and enforcement.  Federal regulations currently require MA plan sponsors to submit risk adjustment data to CMS, but narrowly limit the permissible uses of such data once submitted.  42 C.F.R. § 422.310(b), (e), (f).  Although subsection (e) of 42 CFR 422.310 authorizes CMS to conduct audits to validate risk adjustment data, CMS does not currently have the regulatory authority to utilize this data in connection with other fraud and abuse efforts.  However, if adopted as currently formulated, the Proposed Rule would change this and grant CMS broad authority to use the adjustment data in such manner.
 
Specifically, through the Proposed Rule, CMS seeks to add new permissible uses to 42 C.F.R. § 422.310(f) that would allow CMS to use risk adjustment data for, inter alia, “activities conducted to support program integrity” and “purposes permitted by other laws.”  Given the broad investigative and recoupment authority that Congress has granted to executive branch agencies, including CMS, under the Recovery Auditing Act (P.L. 107-107), the Improper Payments Elimination and Recovery Act of 2010 (P.L. 111-204), and other similar laws, this proposed expansion of 42 CFR § 422.310 would set the stage for CMS to implement more comprehensive audit programs for MA plans and deploy risk adjustment data to advance such efforts.  Doing so would be consistent with the efforts that CMS has undertaken since 2012 to target overpayments in the MA program. 
 
Regardless of how CMS might ultimately utilize risk adjustment data in this regard, the proposed expansion of its ability to use such data has significant fiscal implications for plan sponsors given the role that risk adjustment data play in the determination of payment rates.  Although CMS can currently use such data to target fraud and abuse through Risk Adjustment Data Validation (“RADV”) audits, that process is substantially more cumbersome and time-consuming than the type of automated reviews that Recovery Audit Contractors currently use to identify overpayments in Part A and Part B claims.  Given the relative lack of enforcement activities in the MA program, particularly when compared to its overall size, the proposed expansion of the permissible uses of the risk adjustment data is likely to be the first of many steps taken by CMS to strengthen its oversight of MA plan payments and recover overpayments.
 
CMS’s description and explanation of the Proposed Rule can be found here.