The Year Ahead: Federal Regulatory Developments to Watch
On the federal front, certain regulatory updates are in the works which may clarify the reach of the Federal FCA.
CMS Overpayment Rule
In December 2022, Centers for Medicare & Medicaid Services (CMS) issued a proposed rule to align the standard for identifying overpayments—which could give rise to reverse FCA liability—with the FCA’s knowledge standard. The reverse false claims provision of the FCA, § 3729(a)(1)(G), provides liability for one who “…acts improperly…to avoid having to pay money to the government,” reaching conduct such as knowingly ignoring false claims identified in internal chart reviews and noncompliance with Medical Loss Ratio rules.
A 2018 decision by the United States District Court for the District of Columbia struck down CMS’ previous interpretations of Medicare participants’ overpayment obligations. Specifically, CMS had previously advised that a Medicare program participant “identified” an overpayment when it “has, or should have through the exercise of reasonable diligence,” determined that it received an overpayment. Identifying an overpayment triggers a 60-day timeline to repay the overpayment to CMS, after which the participant may face FCA liability.
However, in UnitedHealthcare Ins. Co. v. Azar, the district court held that the CMS standard created potential FCA liability for mere negligence and “CMS has no legislative authority to apply more stringent standards to impose FCA consequences through regulation.” In response, the proposed rule now states that a program participant identifies an overpayment when it has actual knowledge, deliberately ignores, or recklessly disregards an overpayment—the same scienter requirement as the FCA. The public comment period for the proposed overpayment rule closed on February 13, 2023.
CMS Audit Rule
On January 30, 2023, Centers for Medicare & Medicaid Services (CMS) finalized a rule that allows CMS to use a greater swath of risk adjustment data when collecting overpayments from Medicare Advantage plans. Risk Adjustment Data Validation (RADV) audits are CMS’ primary program integrity tool to oversee the Medicare Advantage program, otherwise known as Medicare Part C.
Under the Medicare Advantage program, CMS makes prospective, capitated payments to private insurers who agree to provide healthcare coverage to Medicare beneficiaries. These payments are determined in large part based on risk adjustment data submitted to CMS. CMS uses RADV audits to recover improper risk adjustment payments when Medicare Advantage Organizations submit inaccurate and unsupported risk adjustment data, receiving more money from CMS than they were due.
Under CMS’ final rule, CMS will extrapolate RADV audit results across payment years from 2018 to the present when collecting overpayments from Medicare Advantage plans. The final rule differed from the proposed rule in that CMS limited extrapolation of the RADV audit findings to payment year 2018, rather than payment year 2011 as initially proposed.
Although CMS will only extrapolate findings back to payment year 2018, CMS made clear that Medicare Advantage Organizations still have obligations to return overpayments from any year:
Nothing in this rule changes the longstanding principle that a diagnosis code that is not documented in a patient’s medical record is not a valid basis for CMS risk adjustment payments to an MAO [Medicare Advantage Organization]. UnitedHealthcare Ins. Co. v. Becerra, 16 F.4th 867, 869 (D.C. Cir. 2021) (‘‘Neither Congress nor CMS has ever treated an unsupported diagnosis for a beneficiary as valid grounds for payment to a Medicare Advantage insurer.’’). Nor does this rule change the longstanding obligation of an insurer to refund payments to CMS if it learns through any means that a diagnosis lacks support in the beneficiary’s medical record. Id.
As CMS recognized, Medicare Advantage Organizations have been on notice for several years that they “have never been entitled to receive or retain payments associated with HCCs [Hierarchical Condition Categories assigned based on diagnosis codes] that cannot be validated by medical records.” However, despite Medicare Advantage Organizations having this knowledge, CMS noted that the “MA [Medicare Advantage] program is at high risk of improper payments,” and “In fiscal year (FY) 2021 (based on calendar year 2019 payments), . . . CMS made over $15 billion in Part C overpayments, a figure representing nearly 7 percent of total Part C payments.” Accordingly, this RADV audit rule “is in the best interest of the Federal Government and our efforts to protect taxpayer dollars to extrapolate in our RADV audits, given the substantial amount of improper payments in MA and the fact that RADV is CMS’ main corrective action used to address the submission of inaccurate diagnosis data.”
It remains to be seen whether Medicare Advantage Organizations will challenge this final rule under the Administrative Procedures Act. This wouldn’t be the first time; in 2016, UnitedHealthcare took to the courts to challenge a CMS final rule to determine when Medicare overpaid certain private insurers.
As CMS’ new rule demonstrates, improper payments under Medicare Advantage are an important enforcement priority under the False Claims Act, and CMS is utilizing more tools to hold Medicare Advantage Organizations accountable.
Jaclyn Tayabji is a Fellow at Tycko & Zavareei LLP
 UnitedHealthcare Ins. Co. v. Azar, 330 F. Supp. 3d 173 (D.D.C. 2018), rev’d in part on other grounds sub nom. UnitedHealthcare Ins. Co. v. Becerra, 16 F.4th 867 (D.C. Cir. 2021), cert. denied, 142 S. Ct. 2851 (U.S. June 21, 2022).
 Id. at 191.
 88 Fed. Reg. 6643, 6644 (Feb. 1, 2023).
 Id. at 6649.
 Id. at 6645.
 Id. at 6650.
 Azar, 330 F. Supp. 3d at 176.