September 29, 2025

Texas Court Overturns Medicare Advantage Audit Rule

News Summary

A Texas federal judge has vacated a rule that would have allowed extensive audits of Medicare Advantage plans by the Centers for Medicare and Medicaid Services (CMS). This ruling, stemming from a case involving Humana Inc., has significant implications for the healthcare industry, protecting major insurers from potential financial turmoil and maintaining the current audit structure. The decision raises questions about the cost-effectiveness of sweeping audits and highlights ongoing regulatory challenges in overseeing Medicare Advantage plans, as the government seeks to manage overpayments without creating instability in the market.

Texas – A federal judge has struck down a significant rule that would have expanded the government’s ability to conduct audits on Medicare Advantage (MA) plans. The ruling, issued by the US District Court for the Northern District of Texas, vacated a 2023 regulation that allowed the Centers for Medicare and Medicaid Services (CMS) to extrapolate audit findings based on a sample of diagnosis codes across all enrollees in Medicare Advantage programs.

Previously, CMS collected overpayments from audits based solely on the diagnoses tied to the enrollees that were specifically audited. The now-invalidated rule was expected to enable the government to recover approximately $4.7 billion over a decade through enhanced risk adjustment data verification (RADV) audits. CMS estimated that Medicare Advantage plans incur over $10 billion annually in excess payments compared to the traditional Medicare fee-for-service model.

The audit methodology laid out in the vacated rule has faced notable pushback from the industry. Humana Inc., one of the leading Medicare Advantage insurers, was instrumental in challenging the regulation. The company argued that CMS violated the Administrative Procedure Act (APA) and asserted that the new rule removed a 2012 fee-for-service adjustment aimed at ensuring equitable payment amounts independent of the audit methodology.

Judge Reed O’Connor presided over the case and found merit in Humana’s arguments, concluding that CMS had not provided adequate notice to affected parties regarding the changes in the audit process. This decision not only impacts Humana but also sets a precedent that may alleviate similar financial risks for other insurers involved in Medicare Advantage programs.

The ruling represents a complex intersection of regulatory challenges, as authorities work to balance the recovery of excessive payments with the administrative burden that broader audits would impose on insurers. The vacated rule was anticipated to play a role in ensuring more rigorous oversight of coding practices within Medicare Advantage, practices that have been linked to inflated payments through techniques such as upcoding.

Data from a congressional advisory group, MedPAC, indicates that Medicare Advantage insurers are expected to receive $84 billion more this year compared to what would be allocated if those beneficiaries were enrolled in traditional Medicare. This discrepancy has raised concerns over the integrity of the Medicare Advantage model and highlighted ongoing debates about the efficacy of oversight mechanisms in place.

In terms of financial implications, analysts have noted that expansive recovery efforts could threaten the financial stability of major insurers, forcing them to reevaluate their underwriting practices to accommodate potential fluctuations in earnings. Nearly half of Medicare beneficiaries are now enrolled in private plans, making this sector a significant revenue stream for companies like Humana, UnitedHealth Group, and Aetna, which is part of CVS Health.

Following the ruling, CMS has remained silent on potential next steps, including whether it may appeal the decision or introduce the rule again after following proper notice and public comment procedures. This uncertainty continues to create a backdrop of instability in the Medicare Advantage landscape, particularly concerning future audits and the management of claims coding practices.

The ruling from Texas has far-reaching implications for how Medicare Advantage plans will be overseen moving forward, raising questions about the effectiveness of current auditing processes and their role in curbing excessive government expenditures. Stakeholders in the Medicare Advantage arena will be closely monitoring developments as discussions about the future of the auditing process unfold.

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Author: STAFF HERE GEORGETOWN

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