Risk Adjustment Continues to be A Major Focus in Medicare Advantage

Medicare Advantage is the dominant Medicare delivery system, now covering 54% of all Medicare enrollees. With the increase in enrollment and federal spending, however, has come increased scrutiny from enforcement and regulatory agencies such as the US Department of Justice (DOJ) and Department of Health and Human Services Office of Inspector General (HHS OIG). The US administration and the administrator for the Centers for Medicare and Medicaid Services (CMS) have publicly commented that they will be focused on fraud, waste, and abuse in the Medicare Advantage program.

There are three major updates for stakeholders to consider going forward this year:

• Medicare Advantage fraud, waste, and abuse continue to be an enforcement priority for the government, with a likely focus on risk adjustment coding.
• Separately, CMS announced greater-than-expected increases in payments totaling $25 billion to Medicare Advantage plans for 2026.
• Recent developments in a high-profile False Claims Act (FCA) litigation suggest that the government must present evidence of specific unsupported diagnosis codes to meet its burden of proof under the FCA.

ENFORCEMENT AGENCIES TARGET MEDICARE ADVANTAGE FRAUD IN DIAGNOSIS CODING

Under Medicare Advantage, private insurance plans contract with CMS and receive capitated payments (per member per month) to provide healthcare coverage to beneficiaries enrolled in their health plans. This capitated payment, unlike traditional fee-for-service Medicare, is designed to cover all healthcare services for each enrollee.

Recognizing that some enrollees require more medical services than others, CMS uses “risk adjustment” to allow Medicare Advantage plans (MA plans) to receive an increased capitated rate for beneficiaries that require more care. Risk-adjusted capitated rates are calculated based on beneficiary diagnosis codes (reflecting health conditions). In short, the greater the expected cost of care for the beneficiary, the higher the risk score, and the greater the capitated payment.

According to DOJ and CMS, risk adjustment is a target for fraud and abuse because there is an incentive to improperly “upcode” (exaggerate the severity of a beneficiary’s health condition) or submit unsupported diagnosis codes in order to receive greater reimbursement. The government’s position is that submitting unsupported diagnostic codes in an attempt to reap higher capitated rates constitutes false claims under the FCA.

There have been significant DOJ enforcement actions resulting in settlements based on alleged false diagnosis codes, some as recently as March and April 2025. Of 44 managed care audits conducted by HHS OIG since 2017, 42 have focused on issues with accurate diagnosis coding. Additionally, in March 2025, the No Unreasonable Payments, Coding, or Diagnoses for the Elderly (No UPCODE) Act, which was originally introduced in 2023, was reintroduced in Congress. The Act would require CMS to consider two years (rather than one year) of patient diagnostic data for risk adjustment and would prohibit coding submissions from chart reviews and health risk assessments (discussed in greater detail below).

Although this area of the Medicare Advantage program is already subject to extensive law enforcement focus, the current US Administration has publicly commented that it nevertheless intends to further ramp up scrutiny of Medicare Advantage stakeholders. Recently, the administrator for CMS, during his confirmation hearing before the Senate Finance Committee, stated that he would combat rising healthcare costs by taking action against upcoding: “I pledge, if confirmed now, we’ll go after it.”

The administrator, who was confirmed on April 3, 2025, also noted that rooting out upcoding has bipartisan support. DOJ representatives at the Federal Bar Association’s Qui Tam Conference also stated that Medicare Advantage fraud would be a focus of the Department’s “aggressive” FCA enforcement efforts. (See our February 24, 2025 LawFlash.) The US administration is clearly signaling that it will continue to make significant efforts in combatting fraud and abuse in the Medicare Advantage program.

CMS ANNOUNCED SIGNIFICANT MA PLAN PAYMENT INCREASES IN 2026

Despite what the government perceives as risk of fraud and abuse in Medicare Advantage, the program continues to grow, and the US administration just substantially increased the federal dollars flowing to MA plans.

CMS published its Medicare Advantage capitation rates and final payment policies for calendar year (CY) 2026 on April 7, 2025. Industry stakeholders have expressed surprise that MA plans can expect to receive a 5.06% increase in payments from the federal government from 2025 to 2026. The announced increase represents the largest in 10 years and doubles CMS’s estimate announced on January 10, 2025. See CY 2026 Advance Notice (estimating a 2.23% increase in payments to MA plans). CMS projects the increase will result in “over $25 billion[] in MA payments to [MA] plans in CY 2026.”

In the past, stakeholders have expressed concerns that payment updates were insufficient to keep pace with utilization and costs and could result in less competition in the Medicare market and fewer plan options for beneficiaries. Additionally, MA plans continue to struggle with falling Star Ratings, affecting qualified bonus and rebate payments. (See our November 27, 2024 blog post.)

In the final rule, CMS also addressed comments related to upcoding by stressing that in 2026, it would complete the three-year phase-in of the 2024 CMS Hierarchical Condition Category risk adjustment model, which was originally proposed to improve accuracy and consistency in risk adjustment and to transition diagnosis coding from ICD-9 to ICD-10 guidelines. CMS also reiterated “the longstanding requirements regarding the accuracy of risk adjustment data submitted to CMS” citing a Health Plan Management System memorandum from April 15, 2022. Finally, CMS indicated it would “consider” a single commenter’s recommendation that CMS exclude the use of diagnoses from chart reviews and health risk assessments for risk adjustment.

GOVERNMENT’S BURDEN OF PROOF IN FCA DIAGNOSIS CODING CASES REMAINS AN IMPORTANT QUESTION

The government’s increased enforcement efforts may require additional factual evidence to successfully prosecute FCA cases based on risk adjustment diagnosis coding. Recently, in a high-profile FCA case, an appointed Special Master recommended granting summary judgement in favor of an MA plan because the government’s evidence failed to meet its burden of proof that diagnosis codes were unsupported.

By way of background, the FCA prohibits reverse false claims, or when a person or entity “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” 31 USC § 3729(a)(1)(G). An “obligation” for purposes of a reverse false claim has been defined in the healthcare context to include a failure to report and return an “identified” overpayment within 60 days “after the date on which the overpayment was identified.” 42 USC §§ 1320a-7k(d)(1), (2), (3); 42 CFR § 401.305(e).

In 2011, a qui tam action (United States ex rel. Poehling v. Unitedhealth Group Inc., Case No. 2:16-cv-08697) was filed against UnitedHealth Group (United) alleging, in relevant part, that the largest MA plan in the country improperly retained Medicare overpayments when it developed knowledge that diagnosis codes it submitted to CMS were unsupported by patients’ medical records. DOJ intervened in the case in 2017. In 2020, United filed a motion to appoint retired Magistrate Judge Suzanne Segal as Special Master in light of judicial shortages, case complexity, and voluminous discovery. The district court granted the motion and appointed the Special Master pursuant to Fed. R. Civ. P. 53(a)(1)(C) to handle matters that could not be effectively and timely addressed by the court.

The government’s allegations focused on United’s “chart review” program. Chart reviews are a common industry practice that occur after an initial submission to CMS of diagnosis codes from physicians. During this time, CMS will accept voluntary MA plan submissions of additional diagnosis codes (called “add codes”) and diagnosis codes to be removed (called “delete codes”) to improve the accuracy of diagnostic information. United hired coders to review medical charts retrieved from physicians and submit “add codes” to CMS reflecting health conditions identified by the coders.

Because the chart reviews were “blind,” the coders did not know what diagnosis codes were initially submitted by the physicians. As a result, some codes identified by the physicians were not identified by the coders. The government claimed that these codes were necessarily unsupported, United did not submit delete codes removing the unsupported codes, and therefore, United improperly retained overpayments from the government. In total, the government alleged that 28 million of United’s diagnosis codes were unsupported, which resulted in 1.97 million overpayments totalling $2.1 billion that United should have returned to the government.

In 2024, United filed a motion for summary judgement. United argued that the government had no evidence that the physician-submitted codes were unsupported other than the fact that they weren’t identified by the chart reviews despite other explanations (e.g., missing medical record pages, chart review coder mistakes). United stated that “after more than a decade of litigation in a case in which [the government] seeks to punish United for billions of dollars, [the government] has chosen instead not to review a single chart—not even a sample” to prove that any diagnosis codes were unsupported.

The government opposed United’s motion arguing that United’s own data provided “considerable evidence” of unsupported diagnosis codes and that its expert calculated the financial impact based on United’s failure to delete the codes not identified by the chart reviews. The government also filed a motion for partial summary judgement arguing that materiality is not a required element of establishing liability that United “knowingly and improperly avoid[ed] . . . an obligation to pay ... the [g]overnment.” In other words, the government argued in its motions that it is not required to show that United used a false record or statement or that a record or statement was material to the government’s payment decision such that CMS would not have paid United had it known about the results of the chart reviews.

In March 2025, almost five years after her appointment, Special Master Suzanne Segal issued a Report and Recommendation that found the government’s case was “devoid of evidence.” The Special Master stated that the government relied on “speculative assumptions” and that it “failed to provide evidence of a single actual instance where a medical record did not support a code.” The Special Master concluded:

[A] mere possibility of an overpayment is not enough for the government to carry its burden for purposes of avoiding summary judgment …. [Rather] “the government needed to present evidence from which a jury could reasonably conclude that the diagnosis codes United submitted were invalid, i.e, that codes were not supported by the related medical record. … This litigation has been pending for more than a decade, and the government has had ample opportunity to develop evidence in support of its theories. It has not done so. …
[T]he government has repeatedly attempted to shift the burden to United to disprove the government’s allegations.

Among other findings and recommendations, the Special Master found that regardless of which of its two prongs forms the basis for the government’s reverse false claim allegation, it would be inconceivable for a fraud statute to lack a materiality element. The Special Master also found that United engaged with CMS and sought guidance from the agency related to its chart reviews. Despite its awareness of United’s practices, CMS continued to make payments—suggesting United’s chart reviews were not material to CMS’s payment decisions. Furthermore, while the agency did not endorse those practices, there was no evidence of concealment or deception, which is required for a reverse false claim. “There simply was no fraud.”

In April 2025, DOJ filed a brief objecting to the Special Master’s Report. While the District Court has not yet issued a final decision, this development could demarcate a more demanding standard for DOJ in these types of risk adjustment cases. The ultimate resolution by the District Court in this matter will be a significant development for stakeholders to watch for this year.