CMS to crack down on Medicare Advantage overpayment

Modern Healthcare – Wednesday, May 21, 2025
By Bridget Early

The Centers for Medicare and Medicaid Services will audit all Medicare Advantage plans annually as part of a crackdown on improper payments, the agency announced Wednesday.

CMS will scrutinize all Medicare Advantage contracts each year and increase its auditing volume, the agency announced in a news release. CMS will dramatically increase the number of employees conducting audits from 40 to 2,000 and will utilize “enhanced technology” for the new enforcement regimen, partially to clear a backlog of audits for payment years 2018 through 2024. The agency expects to complete this look-back next year.

The agency will collaborate with the Health and Human Services Department Office of Inspector General, which has documented billions of dollars in inappropriate payments over multiple years. In October, the OIG detailed as much as $7.5 billion in Medicare Advantage payments from 2023 that were unsupported by corresponding diagnoses, for example.

“We are committed to crushing fraud, waste and abuse across all federal healthcare programs,” CMS Administrator Dr. Mehmet Oz said in the news release. “While the administration values the work that Medicare Advantage plans do, it is time CMS faithfully executes its duty to audit these plans and ensure they are billing the government accurately for the coverage they provide to Medicare patients.”

When President Donald Trump retook the White House on Election Day, the health insurance industry and Wall Street expected his Republican administration to be friendlier to Medicare Advantage carriers than Democratic President Joe Biden’s was. Yet the Trump administration has, to date, shown few signs it would ease off insurance companies, and the audits represent an intensification of CMS oversight.

During his Senate confirmation hearing, Oz — who held stock in Medicare Advantage insurers such as UnitedHealth Group and endorsed these plans as a media personality — told lawmakers he was concerned about carriers overcharging the government, abusing prior authorization and relying on misleading marketing to boost enrollment.

“We welcome CMS’s announcement to audit every Medicare Advantage plan each year, a policy UnitedHealth Group has long publicly advocated for to strengthen program oversight,” the parent company of leading Medicare Advantage insurer UnitedHealthcare said in a statement. “We look forward to working with CMS to develop an accurate methodology and appropriately use advanced technology to greatly enhance the auditing process. We share in CMS’s commitment to strengthening program integrity efforts and ensuring Medicare Advantage beneficiaries have access to high-value, affordable care.”

Risk-adjustment payments and diagnoses

CMS makes risk-adjusted payments to Medicare Advantage insurers using a complex formula that includes factors such as patient acuity. In short, the sicker a patient is, the more money insurers receive. Recent years have seen an increasing effort by regulators to rein in improper payments that don’t necessarily correspond to diagnoses or when diagnoses are more severe than patients’ actual health status.

The agency estimates that Medicare Advantage plans are overpaid by about $17 billion a year because of these discrepancies. Other sources produced much larger estimates. According to the Medicare Payment Advisory Commission, which counsels Congress on policy, overpayments could be as high as $84 billion this year. The Committee for a Responsible Federal Budget, a fiscal watchdog group, projects $1.2 trillion in overpayments over the next decade.

In its October report, the OIG accused insurers of exploiting the system. “Taxpayers fund billions of dollars in overpayments to MA companies each year based on unsupported diagnoses for MA enrollees,” the OIG wrote. “Unsupported diagnoses inflate risk-adjusted payments and drive improper payments in the MA program.”

CMS audits insurers with a system called Risk-Adjustment Data Validation, or RADV, through which it confirms that payments align with diagnoses in patient medical records. The agency updated its audit methodology in 2023, which allowed it to extrapolate RADV findings as far back as 2018.

But CMS now says it is “several years behind” in completing these audits. The agency will increase audit volume from 60 plans per year to all plans, and will increase record reviews from 35 per plan, per year to as many as 200, depending on the size of the plan.

CMS did not immediately respond to request for comment about whether its use of “enhanced technology” to speed the auditing process will include artificial intelligence, a technology Oz has promoted.

“Today’s announcement is the right approach to enhance accountability and payment accuracy in Medicare Advantage, and we applaud Administrator Oz and CMS for taking this important step,” Better Medicare Alliance President and CEO Mary Beth Donahue wrote in an email. “Medicare Advantage already includes strong accountability mechanisms and consistently enforcing them will help the program work even better for seniors and taxpayers alike.”

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