A federal appeals court has ruled against UnitedHealthcare, the biggest private payer in the U.S., and reversed a 2018 decision overturning Medicare’s overpayment rule requiring insurers to refund reimbursement to CMS within 60 days if they learn a diagnosis lacks medical record support.
UnitedHealthcare argued in court in November the overpayment rule was subject to “actuarial equivalence,” a Medicare statute requiring CMS to adjust payments to Medicare Advantage plans based on risk factors so they’re equivalent for their members and the traditional Medicare beneficiaries whose healthcare cost data CMS uses to calculate the capitated MA payments.
But that doesn’t apply to the overpayment rule, and UnitedHealthcare’s argument is without legal basis, the U.S. Court of Appeals for the District of Columbia ruled in a decision filed Friday. The court remanded the case back to the district court to judge in favor of CMS. Both UnitedHealth and CMS declined to comment on the decision.
In the privately run MA program, CMS pays plans on a per-member basis, then adjusts payments based on the acuity or severity of their member’s health status, as supported by provider data like diagnostic codes. Generally, the sicker the member, the higher the plan’s reimbursement.
As the MA program becomes increasingly popular, growing to cover more than 40% of all Medicare beneficiaries, watchdogs have been finding higher incidence of fraud and abuse, reporting plans are hiking risk scores to overinflate members’ health needs, resulting in higher payments from CMS.
A significant number of reported diagnoses in MA are unsupported, regulators say. According to one analysis conducted by the HHS Office of the Inspector General into PacifiCare of Texas’ scoring from 2007, the risk scores for 43 out of 100 beneficiaries lacked documentation and were therefore invalid.
As a result of such billing abuses and mistakes, a 2020 OIG report found that MA paid $2.6 billion a year for diagnoses unrelated to any clinical services, while CMS estimates insurers have overcharged Medicare by almost $30 billion over the past few years.
The overpayment rule, created in 2010 as a provision of the Affordable Care Act and promulgated by CMS through rulemaking in 2014, is part of the government’s ongoing push to curb MA costs. Under the regulation, failing to report and return a known overpayment within 60 days of discovery is a violation of the False Claims Act and can result in serious financial penalties for a payer.
UnitedHealth, UnitedHealthcare’s parent company, filed a legal challenge to the overpayment rule in 2016. CMS’ motion to dismiss the challenge was denied in 2017 and one year later, a district court granted UnitedHealth’s motion and vacated the rule.
UnitedHealth’s central challenge to the rule is it violates actuarial equivalence by relying on both supported and unsupported codes to calculate risk in traditional Medicare, but only supported codes backed by medical records in the MA program. That results in different payments for identical beneficiaries in MA and fee-for-service Medicare, systematically devaluing MA payments to insurers by measuring overpayments based on audited patient records, the Minnesota-based payer alleged.
However, in its 49-page decision issued Friday, the D.C. appeals court thoroughly denied that argument.
“There is no legal or factual basis for UnitedHealth’s claim,” the court wrote.
“Even if actuarial equivalence applied as UnitedHealth suggests, it would be UnitedHealth’s burden to show the systematically skewed inaccuracies on which its theory depends, which it has not done. Also fatal to UnitedHealth’s claim is that it never challenged the values CMS assigned to the risk factors it identified or the level of the capitation payments resulting from CMS’s risk-adjustment model,” the court ruled. “It cannot belatedly do so in the guise of a challenge to the Overpayment Rule.”
The court also rejected UnitedHealth’s arguments that the overpayment rule violates the “same methodology” requirement mandating CMS use the same risk-adjustment model in computing its data that it uses to set monthly MA payments; and its claim that the rule is arbitrary and capricious, for the same reasons.
UnitedHealthcare is the largest MA insurer by enrollment, with 27% of the market, according to the Kaiser Family Foundation. However, it’s not the only payer to clash with regulators over payments in the program.
Earlier this month, CVS Health reported in a financial filing with the Securities and Exchange Commission that HHS OIG is auditing its MA plans, while other insurers that have come under fire in the past year or so with audits, whistleblower lawsuits and major settlements for alleged overbilling include Cigna, Humana, Anthem and Kaiser Permanente.