On May 21, 2025, The Centers for Medicare & Medicaid Services (CMS) announced it was undertaking several significant actions to increase oversight of Medicare Advantage (MA) plans. The announcement indicated CMS would aggressively audit Medicare Advantage plans.
Here is an overview of the announcement and its potential impact:
What actions does the CMS audit announcement indicate the organization will make?
The announcement indicated CMS would take the following actions:
Implementing an Aggressive Audit Strategy
CMS announced an aggressive strategy to audit Medicare Advantage. The agency aims to reduce fraud, waste, and abuse across all federal healthcare programs while ensuring MA plans accurately bill the government.
Auditing All Eligible MA Contracts
Beginning immediately, CMS will audit all eligible MA contracts for each payment year. Previously, CMS audited around 60 MA plans annually, and this expansion will cover approximately 550 eligible MA plans annually.
Expediting Backlogged Audits
CMS will invest additional resources to expedite the completion of audits for payment years 2018 through 2024. The agency is currently several years behind in completing these audits. They plan to complete these older reviews by early 2026.
Deploying Enhanced Technology
To tackle the backlog and increase the volume of audits, CMS is deploying advanced systems to review medical records and flag suspicious diagnoses. This technology will help grow the number reviewed per plan annually, from 35 to between 35 and 200 records.
Increasing Medical Coding Workforce
CMS will significantly increase its team of medical coders. CMS expects to grow the workforce from 40 to approximately 2,000 medical coders by September. These coders will manually verify detections flagged by the advanced systems.
Collaborating with HHS-OIG
CMS will collaborate with the Department of Health and Human Services Office of Inspector General (HHS-OIG) to recover uncollected overpayments identified in past audits.
Focusing on Risk Adjustment Data Validation (RADV)
CMS uses Risk Adjustment Data Validation (RADV) audits. These audits confirm that diagnoses used for payment are supported by medical records. MA plans receive risk-adjusted payments based on the diagnoses they submit, resulting in higher amounts for patients with more serious conditions. Concerns exist that MA plans may overbill the government by inflating illnesses.
Launching the Fraud War Room
In March, CMS launched the Fraud War Room to find improper enrollment, false billing, and other violations. The agency recently suspended $43 million in payments to 33 providers identified through this initiative.
Why has CMS expressed a need to increase oversight?
The need for increased MA oversight stems from several key concerns and findings:
Significant Estimated Overpayments
Federal estimates suggest that MA plans may be overbilling the government significantly. The Medicare Payment Advisory Commission (MedPAC) estimates this figure could be as high as $43 billion per year. Completed audits for payment years 2011–2013 found 5% to 8% in overpayments. Overall, MedPAC estimates that in 2025, Medicare will spend approximately 20%, or $84 billion, more for MA enrollees than it would if those beneficiaries were in traditional fee-for-service (FFS) Medicare.
Financial Impact on Medicare
Spending on MA plans increases the financial burden on taxpayers and beneficiaries. MedPAC estimates that aggregate Part B premiums will be about $13 billion (10 percent) higher in 2025 because of payments above FFS spending, which is equivalent to about $198 per beneficiary per year. The rapid growth of MA enrollment and spending, driven by these higher payments, worsens fiscal sustainability.
Issues with Risk Adjustment and Coding Intensity
MedPAC estimates that higher diagnostic coding by MA plans, often referred to as coding intensity, overstates the health differences between MA and FFS enrollees assumed in risk scores. Financial incentives exist for MA plans to code more diagnoses. MA plans also leverage additional tools, including health risk assessments and chart reviews, that are not features of FFS Medicare. MedPAC projects that in 2025, MA risk scores will be about 10 percent higher than they would have been if MA enrollees were in FFS Medicare, even after the CMS standard adjustment. MedPAC projects higher scores due to coding intensity will result in $40 billion of the $84 billion in higher total payments to MA plans in 2025.
Concerns exist that plans are inflating illnesses to increase reimbursement. MedPAC notes that coding intensity is driven by plans recording diagnoses more comprehensively than in FFS. In some cases, plans may be submitting fraudulent diagnostic data.
Need to Ensure Accurate Billing and Combat Fraud, Waste, and Abuse
CMS Administrator Dr. Mehmet Oz stated that it is time for CMS to “faithfully execute its duty to audit these plans and ensure they are billing the government accurately.“ The agency is committed to “crushing fraud, waste, and abuse across all federal healthcare programs.“
Backlog in Completing Audits
CMS is several years behind in completing these audits. The last significant recovery of MA overpayments occurred following the audit of the 2007 payment year. The audit backlog dates back to the payment year 2018.
Incomplete Data Limiting Oversight
MedPAC finds that plan-submitted data about enrollee healthcare encounters are incomplete, and information about the use of many MA supplemental benefits is lacking. Without this data, policymakers cannot fully understand service use, which “limits policymakers’ ability to oversee the program and assess the value that enrollees get from supplemental benefits.”
What impact might this increased oversight have on health plans?
The increased MA oversight by CMS is expected to have several significant impacts on health plans:
Potential for Significant Financial Clawbacks
CMS’ commitment to auditing all eligible MA contracts for each payment year, including expediting backlogged audits from 2018 through 2024, aims to identify and collect federal overpayments. Healthcare strategy firm Capstone indicated that clawbacks could be quite large during the period CMS outlined. MedPAC estimates that MA plans could be charging CMS up to $43 billion per year more than they should. J.P. Morgan analysts wrote that the expanded audits could be an “incremental headwind“ for major managed care organizations, mentioning insurers Humana, CVS, and UnitedHealth.
Increased Scrutiny of Risk Adjustment Coding Practices
The core of these audits is RADV, which confirms that medical records support the diagnoses used to determine plan payments. MA plans receive higher risk-adjusted payments for enrollees with more diagnoses. MedPAC estimates that differences in coding intensity, which results in MA enrollees having more diagnosis codes than beneficiaries in traditional Medicare, will lead to $40 billion in higher payments to MA plans in 2025. The increased audits will directly scrutinize the accuracy and validity of these diagnoses, potentially reducing payments linked to coding intensity.
Focus on Specific Coding Mechanisms
MedPAC highlights that tools unique to MA plans, such as health risk assessments and chart reviews, are sources of coding intensity and revenue. These mechanisms accounted for an estimated $34 billion in payments in 2023. Increased oversight will likely target diagnoses documented solely through these methods, particularly when they are not supported by subsequent clinical encounters. MedPAC has previously recommended excluding diagnoses collected from health risk assessments and chart reviews from risk adjustment.
Impact on Competitive Advantage from Coding Intensity
Plans that utilize more aggressive coding practices, resulting in higher risk scores, gain a competitive advantage. They receive larger rebates (the difference between the risk-adjusted benchmark and their bid) and offer more generous supplemental benefits. Increased oversight and reduced payments linked to unsupported coding could diminish this advantage and potentially level the playing field among plans.
Adaptation to Risk Adjustment Model Changes
CMS is phasing in a new risk-adjustment model (V28) starting in 2024, which should reduce MA risk scores and coding intensity by excluding some diagnoses with much higher MA coding rates relative to Fee-for-Service (FFS) Medicare. The increased audits will reinforce the need for plans to adapt their coding practices to comply with this new model and the stricter validation standards.
Potential Scrutiny of Plan-Provider Relationships
While not a direct audit target mentioned in the same way as RADV, MedPAC has raised concerns about the increasing vertical integration in the MA industry, where insurers acquire provider businesses. They note that incentives to influence providers to deliver efficient care and engage in thorough diagnostic coding partly drive this integration. Some MA organizations with the highest coding intensity are concentrated in California and Florida, potentially linked to capitated arrangements that pass coding incentives to medical groups. Increased oversight of coding could indirectly lead to further examination of these business models and the incentives they create.
Increased Compliance Burden and Reputational Risk
The expansion of audits to cover all eligible contracts annually will inevitably increase the administrative burden on health plans to comply with data and documentation requests.
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