(Bloomberg) -- The US Medicare agency will seek about $4.7 billion over 10 years in clawback payments from private insurers that manage its programs under a long-awaited rule finalized Monday, a blow to the industry that sets up a likely court fight.
The rule, which governs audits of Medicare Advantage insurers by the Centers for Medicare and Medicaid Services, is tougher than the industry had lobbied for. It finalized a 2018 proposal for auditing the private plans that administer programs for the agency, a move intended to recover excessive payments based on exaggerated claims of patient illness.
“Today we are taking some long overdue steps to move us in a direction of accountability,” Health and Human Services Secretary Xavier Becerra said on a call with reporters.
Private Medicare health plans are a growing source of profit for insurers like Humana Inc., UnitedHealth Group Inc. and CVS Health Corp. Managed-care companies fiercely opposed the 2018 proposal, and the final version contains few concessions to industry. If it survives court challenges, the policy could increase the amount Medicare insurers will eventually have to repay the government over what officials say isn’t backed up by patients’ medical records.
Industry groups criticized the policy, with the leading insurers’ lobby calling it “unlawful.” But the impact may be more favorable than some investors feared, according to a note from JPMorgan Securities analysts led by Lisa Gill. The government won’t aggressively go after audit recoveries from years before 2018, and most payments won’t be collected until 2025, giving the industry time to prepare.
After sinking on the initial news, insurers’ stocks rose sharply when markets opened Tuesday. Humana jumped as much as 5.8%, the biggest intraday gain since September, and UnitedHealth rose as much as 3.9%, the most since October, at 9:44 a.m. in New York. CVS gained 1.3%, Centene Corp. gained 3.1% and Elevance Health Inc. rose 3.8%.
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Insurers in Medicare Advantage get paid more for enrolling sicker patients, and the audits are meant to check those payments against medical records to ensure that they’re accurate.
CMS will limit the impact of its reviews on insurers’ payments for the earliest years under audit — from 2011 to 2017 — officials said Monday. The agency plans to look at certain insurer contracts for signs of diagnostic errors, and results from those audits won’t be extrapolated to broader populations during the earlier years. Starting from 2018, however, the audit results will be extrapolated, an approach the industry argued could lead to a flawed analysis.
The biggest setback for the industry is that the final rule doesn’t include a provision to make the audits more lenient when errors are found. Medicare insurers say the process needs to take into account equivalent diagnostic errors in the traditional Medicare program, but officials declined to add such an adjustment.
The industry has argued that such a policy is essential and has threatened to challenge the rule in court if it wasn’t included in the final version. The original version of the rule would have cost the industry $3 billion if it wasn’t modified, according to one independent research estimate.
CMS officials said the new policy was meant to strike a balance, by not extrapolating audit results from earlier years, but holding Medicare plans accountable for errors in more recent data. Becerra said the move was needed in part because Medicare Advantage has grown dramatically in recent years and now covers almost half the people who participate in the US health program for the elderly and disabled.
The agency expects to recover $479 million from plans for the 2018 audit year, Dara Corrigan, director of the CMS Center for Program Integrity, said on the call with journalists. The agency didn’t say what amount it expects to recover for the 2011 to 2017 years, which are still subject to audit. Because those results won’t be extrapolated to broader populations, the amount clawed back may be less significant.
The rule would let CMS take “specific steps to collect payments made to the Medicare Advantage plans to which they were never entitled,” Becerra said.
The total amount expected to be recovered is less than 0.2% of total payments to Medicare Advantage plans, Corrigan said, calling the agency’s approach “measured and balanced oversight.”
Medicare Advantage covers about 29 million Americans, and plans collected $350 billion in federal payments in 2021. CMS previously estimated that its 2018 proposed rule would recover $650 million in improper payments for the audits from 2011 to 2013, and about $400 million a year after that.
Insurance industry groups decried CMS’s decision. “This rule is unlawful and fatally flawed, and it should have been withdrawn instead of finalized,” said Matt Eyles, chief executive officer of America’s Health Insurance Plans, a trade group. The decision would raise prices and reduce benefits, he said in a news release, while calling on CMS to work with industry on “legally sound” policies.
The Alliance of Community Health Plans, which represents large nonprofits including Kaiser Permanente and UPMC Health Plan, said it was disappointed in the rule and warned that it could disrupt care.
“This rule comes with enormous costs and fails to target the most egregious diagnosis coding violations,” Ceci Connolly, the group’s chief executive officer, said in a news release.
The final rule estimates that the government would not start to collect recoveries for payments from 2018 until 2025. For the early years still under audit, the audits will cost more to conduct than the agency expects to recover. That shows why CMS wants to extrapolate results from a sample of patient records to calculate broader amounts it seeks to recover: The math doesn’t work without extrapolation. But the details of how the government makes those calculations will surely be contested in any legal challenge the industry mounts.
Corrigan said the agency would focus enforcement on plans with the highest risk of improper payments. The government hasn’t collected any overpayments from Medicare Advantage plans through the audit process since the audits of the 2007 year.
--With assistance from Jonathan Roeder and Bre Bradham.
(Updates with additional context and share moves in first section)
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