The Medicare Act does not expressly provide for judicial review of overpayment determinations made by the Centers for Medicare & Medicaid Services (CMS) under the agency’s controversial Risk Adjustment Data Validation (RADV) program for Medicare Advantage (MA) organizations. With the first wave of such overpayment determinations expected in the coming months, MA organizations impacted by RADV audits should begin considering a potential route to judicial review of such overpayment determinations and whether courts may deem exhaustion of administrative remedies a prerequisite to judicial review.

The RADV Final Rule

As we reported earlier this year, CMS recently published a much-anticipated final rule implementing changes to the RADV program. In that program, CMS audits particular contracts between CMS and MA organizations by which MA organizations agree to operate health plans providing Medicare benefits to enrollees otherwise eligible for traditional Medicare. The MA organizations, in turn, contract with unaffiliated third parties to provide health care items and services to the plans’ enrollees. CMS pays MA organizations a per member, per month capitated payment that is risk-adjusted based on enrollees’ diagnosis codes, with higher payments being made to MA organizations for enrollees with diagnosis codes that signify a need for more costly care.

CMS’s recent final rule explained that as a matter of standard practice, the agency will engage in contract-wide sampling and extrapolation beginning with RADV audits for payments made in 2018. In doing so, the agency stated that it will evaluate whether the diagnosis codes for a sample of plan enrollees are supported by the enrollees’ underlying medical records. If errors are found within the sample indicating that the MA organization received what CMS believes to be an overpayment, CMS will apply that error rate across the entire contract with the MA organization, resulting in an even larger amount owed by the MA organization. CMS indicated that when it makes an overpayment determination, the agency will offset the amount in question from the plan’s next monthly capitation payment (and from subsequent monthly capitation payments, if necessary).

Notably, however, the first wave of RADV overpayment determinations will likely involve audits related to payment years 2011 through 2017 that were conducted (or are being conducted) either by CMS or by the Department of Health and Human Services Office of Inspector General. CMS’s final rule stated that CMS will not use contract-wide extrapolation when calculating overpayment determinations related to such audits. As a result, these overpayment determinations are expected to be smaller in amount when compared to later-year audits. Such overpayment determinations may nonetheless provide a potential vehicle for challenging other aspects of CMS’s recent final rule and/or the RADV program if a MA organization is so inclined.

So We Can Sue, Right?

Whether one may obtain judicial review of a Medicare-related determination often presents a difficult jurisdictional question. The ultimate answer to that question in the RADV context is beyond the scope of this article and will likely be the end product of litigation in the coming years. Rather than delve into every detail, this article suggests at least one potential route to judicial review.

As noted above, the Medicare Act does not expressly provide for judicial review of RADV overpayment determinations. In fact, the Medicare Act expressly provides for judicial review of a relatively narrow subset of MA determinations. See 42 U.S.C. § 1395w-22(g)(5) (providing for judicial review of certain MA coverage determinations satisfying an amount-in-controversy requirement). And the Medicare Act even goes so far as to expressly prohibit judicial review of particular MA issues. See, e.g., 42 U.S.C. § 1395w-23(l)(8) (prohibiting judicial review of certain determinations related to meaningful use of electronic health records).

So if the Medicare Act does not expressly provide for judicial review in the RADV context, what about using the so-called “federal-question statute,” 28 U.S.C. § 1331? That statute provides that federal district courts “shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.” And the Administrative Procedure Act provides that “[a] person suffering legal wrong because of agency action . . . is entitled to judicial review thereof.” 5 U.S.C. § 702.

Reliance on the federal-question statute is potentially complicated in this instance by a statutory provision outside the Medicare Act: namely, 42 U.S.C. § 405(h). Section 405(h)’s third sentence states that “[n]o action against the United States, the Commissioner of Social Security, or any officer or employee thereof shall be brought under section 1331 . . . of title 28 [i.e., the federal-question statute] to recover on any claim arising under this subchapter [i.e., subchapter II, 42 U.S.C. §§ 401–434].”

But wait? What’s this about the “Commissioner of Social Security” and claims arising under subchapter II? I thought we were talking about Medicare.

Well, the Medicare Act states that the “provisions of . . . subsections (a), (d), (e), (h), (i), (j), (k), and (l) of section 405 of this title, shall also apply with respect to this subchapter [i.e., the Medicare Act] to the same extent as they are applicable with respect to subchapter II, except that, in applying such provisions with respect to [the Medicare Act], any reference therein to the Commissioner of Social Security or the Social Security Administration shall be considered a reference to the Secretary [of Health and Human Services] or the Department of Health and Human Services, respectively.” 42 U.S.C. § 1395ii (emphasis added). And in the past, the Secretary has argued that § 405(h)’s third sentence precludes reliance on the federal-question statute in the Medicare context as a whole. However, the Supreme Court of the United States addressed an analogous situation in Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667 (1986). At the time, the Medicare Act did not expressly provide for judicial review of regulations promulgated by the Secretary under Medicare Part B. Among other things, the Secretary argued that § 405(h)’s third sentence had the effect of precluding judicial review not otherwise provided in the Medicare Act. The Supreme Court disagreed in that particular case because to do so would mean that the parties challenging the regulation would have had no means of obtaining judicial review. See Shalala v. Ill. Council on Long Term Care, Inc., 529 U.S. 1, 19 (2000) (so interpreting Michigan Academy). Therefore, at first blush, it would appear that a substantial argument could be made that a district court could exercise jurisdiction over a RADV overpayment determination under the federal-question statute.

Exhaustion Required?

If you have read this far, you are no doubt exhausted. As a result, a subsequent installment will touch upon the potentially thorny question of whether courts may find that a MA organization must exhaust administrative remedies before challenging a RADV overpayment determination in federal district court—even if doing so is futile and even if the multi-level appeals process CMS has codified at 42 C.F.R. § 422.311 precludes appeals based on those legal arguments most likely to arise in this context, including whether CMS has exceeded its statutory authority.

Reed Smith will continue to track developments regarding the RADV audit rule and its impact on Medicare Advantage. Should you have any questions about the this rule, or have other health care compliance concerns, please do not hesitate to reach out to the author of this post or the other health care attorneys at Reed Smith.