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Business Law Today

February 2024

Humana Challenge to 2023 CMS Final RADV Rule: An Attack on Retroactive Rulemaking

Sabrina Skeldon


  • On September 1, 2023, Humana filed suit in the U.S. District Court for the Northern District of Texas—Humana v. Becerra—challenging the new final rule issued in 2023 governing risk adjustment data validation (“RADV”) audits in the Medicare Advantage program.
  • The 2023 RADV final rule eliminated the fee-for-service adjuster (“FFSA”), which had been used to limit audit recovery to avoid underpayment due to differences in documentation standards; removed limits on RADV audit methodology; and indicated payments from 2018 forward would be retroactively recovered.
  • Humana argues that elimination of the FFSA introduces an inconsistent documentation standard that will impact the predictability of the Medicare Advantage bid process and creates impermissible retroactive liability affecting plan years from 2018 forward.
  • In response, the Department of Justice has attacked Humana’s standing to challenge the 2023 RADV final rule, asserting that no audits under the rule have occurred. However, the Office of Inspector General for the Department of Health and Human Services has conducted multiple audits of Medicare Advantage Organizations that refer to the 2023 RADV final rule as the basis for their methods.
Humana Challenge to 2023 CMS Final RADV Rule: An Attack on Retroactive Rulemaking

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On February 1, 2023, the Centers for Medicare and Medicaid Services (“CMS”) issued its final rule on risk adjustment data validation (“RADV”) audits. The rule is already the subject of litigation. On September 1, 2023, Humana filed suit in the U.S. District Court for the Northern District of Texas, challenging the new RADV audit rule as an arbitrary and capricious reversal of the 2012 policy governing RADV audits conducted by CMS—and as retroactive rulemaking that upends the predictability of the Medicare Advantage bid process and threatens the availability of benefits to enrollees. On December 15, 2023, the Department of Justice filed a motion to transfer or dismiss the Humana suit. The Department of Justice argues that because CMS has not yet begun any audits under the new methodology, much less completed them, Humana lacks standing to challenge the new RADV audit rule and that certain aspects of the RADV audit rule are not ripe for adjudication.

Case Details

Humana argues that the new rule eliminating the fee-for-service adjuster (“FFSA”) introduces an inconsistent documentation standard that impacts the predictability of the Medicare Advantage (Part C) bid process. To manage financial risk, plans will be required to estimate potential rebates or premiums, due to increased audit recoveries arising from the retroactive application of a different audit methodology. Underlying Humana’s argument is the fundamental principle that “[t]he legal effect of conduct should ordinarily be assessed under the law existing at the time that the conduct took place.” The 2023 RADV audit rule change, asserts Humana, impermissibly creates retroactive liability affecting plan years from 2018 forward.

In its prior final rule in 2012, CMS recognized the need to use the FFSA to account “for the fact that the documentation standard used in RADV audits to determine a contract’s payment error (medical records) is different from the documentation standard used to develop the Part C risk-adjustment model (FFS claims).” The FFSA was intended to ensure that the amount due in a RADV audit considered the difference between audit review standards and the errors resulting from unsupported fee-for-service diagnostic codes, creating a permissible level of payment errors and limiting RADV audit recovery to payment errors above the set level. Humana asserts that the elimination of the FFSA removes a factor required to achieve actuarial equivalence between Part B payments and those of Medicare Advantage.

Humana argues that the retroactively applied standard for calculating extrapolated overpayments changes the legal effect of conduct under the law existing at the time that the conduct took place. Humana asserts that the change impacts all bids submitted by it since 2012. It states that since 2012, when CMS announced its adoption of the FFSA, Humana has predicated its Medicare Advantage contract bids on the existence of the FFSA. It asserts that the application of the new standard in this current plan year and earlier periods is contrary to the obligations of CMS under the annual rate notice. A retroactive application of the new standard, Humana argues, is contrary to the factors that were key to establishing the current- and prior-year bid proposals. Humana states that it based its bids on the CMS annual rate notice in place in the earlier periods, which required disclosure by CMS to identify risk and other factors to be used in adjusting payments.

Humana seeks to have the court vacate the final rule and enjoin its application against Humana in RADV audits.

Department of Justice Motion to Dismiss and Transfer Humana Suit

Humana’s suit is premised on the impact extrapolated overpayments identified in a RADV audit for payment years 2018 forward will have on current year plan bids and insurance pricing. The Department of Justice attacks Humana’s standing to challenge the 2023 CMS Final Audit Rule. It incorrectly asserts that no RADV audits under the challenged rule have occurred, and that neither Humana nor any of its subsidiaries have been audited. The Department of Justice argues that because the harm of such audits is not certainly impending, Humana cannot establish standing through “a reasonable reaction” to “that risk of harm.” CMS’s authority to conduct RADV audits is set out in 42 CFR 422.311, and it has been retroactively applied by the Office of Inspector General for the Department of Health and Human Services (OIG), in its performance of its audits of Medicare Advantage Organizations, six times since the rule became effective.

Geisinger Health Plan, in its challenge to 2023 Medicare Advantage Compliance Audit findings from the OIG, challenged the authority of the OIG to perform risk adjustment audits, arguing it lacks authority under federal regulations (42 CFR § 422.311) and the Inspector General Act of 1978 to assume program operating responsibilities. It argued that the OIG’s reliance on 42 CFR § 422.311, which outlines the authority of CMS to conduct RADV audits, as one source of authority for its actions, is incorrect in that the regulation “does not govern or inform OIG’s actions” and that the OIG is limited to agency oversight and reporting. Under 42 CFR Section 422.311, Congress intended risk adjustment audits “to be performed by CMS, not OIG” as a corrective audit activity developed by CMS to address provisions included in federal statutes. The exercise of RADV audits delegated to the OIG, Geisinger argued, is tantamount to providing it the authority to “effectively create a new rule under the wrappings of an audit.”

Since February 1, 2023, there have been six OIG audits carried out under the 2023 Final Rule including the audit of Geisinger. A total of approximately $6.4 million in overpayments have been assessed against six Medicare Advantage payers, including a subsidiary of Humana, CarePlus Health Plan. In two of these instances, the OIG extrapolated the overpayment amount assessed because it arose from plan activity after 2018. No fee-for-service adjuster was applied in two of the audits to reduce the net overpayments recouped.

In the OIG audits conducted under the new 2023 Final Rule, payers have objected to audit findings, challenging the methodology used as involving flawed audit sampling that is inconsistent with CMS’s actuarial equivalence mandate, and its requirements for data accuracy and compliance.

CarePlus, in its 2023 contract level RADV audit, asserted an actuarial equivalence argument and objected to CMS’s failure to apply an FFSA in the overpayment calculation, asserting that during the year audited (2015), the 2012 Final Rule allowed for the offset to the recouped overpayment. The OIG responded to CarePlus’s actuarial equivalence argument in its audit report by stating:

We note that after we issued our draft report, CMS stated that it “will not apply an adjustment factor (known as a Fee-For-Service (FFS) Adjuster) in RADV audits.” To this point, we recognize that CMS—not OIG—is responsible for making operational and program payment determinations for the Medicare Advantage program.

However, by adjusting its findings to correspond to the requirements of the 2023 Final Rule for an audit with 2015 as the audit year, the OIG effectively applied a different audit standard than the one in place in 2015, the 2012 Final Rule, which did factor an FFSA into the calculated overpayment.


Medicare Advantage payers face a difficult road in their efforts to manage the risks associated with the 2023 RADV audit rule. However, the 2023 contract-level RADV audits have provided evidence demonstrating the risk of harm associated with the 2023 RADV Final Rule.