19 August 2021

D.C. Circuit Reinstates Parts C/D Overpayment Rule

The D.C. Circuit Court of Appeals recently overruled an earlier district court vacatur of the CMS Parts C/D Overpayment Rule, resulting in reinstatement of the rule.  The decision adopted the government’s arguments in full and is likely a harbinger of renewed confidence by DOJ in pressing forward with FCA cases premised on Medicare Advantage “upcoding.”

As discussed further here, in 2018, a D.C. district court vacated the overpayment rule, which requires Medicare Advantage plans to delete every unsupported diagnosis code within sixty days of identification or else face FCA liability for failure to return overpayments.  The rule implements a broader statutory mandate in the Affordable Care Act to report and return overpayments.

A health insurance plan challenged the rule as violating two statutory mandates: 1) the requirement that CMS adjust payments to Medicare Advantage plans based on risk factors “so as to ensure actuarial equivalence” between that insurer’s beneficiary population and traditional Medicare beneficiaries, and 2) the requirement that CMS compute and publish risk factor scores “based on diagnoses for inpatient and other sites of service, using the same methodology as is expected to be applied in making payments under subsection (a),” i.e., the subsection that includes the actuarial equivalence requirement.

The district court had concluded that both statutory mandates were violated, but the D.C. Circuit panel disagreed on both counts.  The plaintiff argued that because of the actuarial equivalence mandate, if CMS were to require a return of funds for every unsupported code, it would either need to similarly audit traditional Medicare diagnosis code data or apply a “fee-for-service” (“FFS”) adjustor to offset error rates in traditional Medicare data.  However, the panel held that the “actuarial equivalence requirement does not apply to the separate statutory obligation on insurers to refund overpayments they erroneously elicit from CMS; nor, by the same token, does actuarial equivalence apply to the Overpayment Rule that implements that statutory obligation.”  For the same reasons, the panel quickly concluded that the Overpayment Rule also “does not implicate the Medicare statute’s separate ‘same methodology’ requirement.”

Citing findings by CMS and OIG relating to error rates in the Medicare Advantage program, the panel was seemingly troubled by the plaintiff health plan’s acknowledgement at oral argument that under its position, “a Medicare Advantage insurer could be entitled to retain payments that it knew were unsupported by medical records so long as CMS had not established that the insurer’s overall payment error rate was higher than traditional Medicare’s payment error rate.”

The question of whether CMS must incorporate a FFS adjustor into its RADV audit program is the subject of ongoing rulemaking.  The panel specifically stated that its decision expresses no opinion on whether the actuarial equivalence requirement would require the use of a FFS adjustor in RADV audits.

The lawsuit also challenged the overpayment rule’s definition of “identified,” which incorporated a negligence standard.  Under the original definition, a plan would be considered to have identified an overpayment if it “has determined, or should have determined through the exercise of reasonable diligence,” that it received an overpayment.  The district court concluded that this negligence standard was inconsistent with the FCA’s definition of “knowingly,” which requires at least reckless disregard.  Importantly, the government did not appeal this part of the district court’s ruling and it remains intact following the appellate decision.

As discussed here, this case has been closely watched by district courts overseeing FCA cases premised on alleged Medicare Advantage upcoding, and this decision can be expected to embolden DOJ in these matters.

A copy of the opinion is available here.

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