Humana sues feds over new Medicare ‘clawback’ rule that could cost insurers $47B

Humana sued the Centers for Medicare & Medicaid Services on Sept. 1 in an attempt to block a Biden administration policy allowing Medicare to claw back billions of dollars from insurers for overcharges. The lawsuit said CMS “did not even try” to justify its more aggressive approach toward determining whether private Medicare Advantage plans were overpaid.

Humana objected to a rule announced in January that allows the government to recoup payments when audits uncover charges for diagnoses that are not in patients’ medical records. The insurer said the rule, which would apply retroactively, was “arbitrary and capricious” and threatened “unpredictable consequences for Medicare Advantage organizations and the millions of seniors who rely on the Medicare Advantage program for their health care.”

Nearly half of the approximately 65 million Medicare enrollees sign up for Medicare Advantage. CMS is cracking down because audits have shown that private insurance companies have charged billions of dollars in overpayments to Medicare Advantage plans and increased costs to the Medicare program. The government expects to claw back roughly $4.7 billion over the next decade by recouping payments from cases where payers inflated patients’ sickness to garner higher reimbursement from the government.

Overpayment is a major issue in the program, where private insurers receive lump sums from the government to cover the care of Medicare seniors. Plans receive more money for sicker patients, creating an incentive to inflate risk scores. One report from government watchdogs estimated that Medicare made $50 billion in overpayments from 2013 through 2017 from “plan-submitted diagnoses that were not supported by beneficiaries’ medical records.” Regulators initially proposed recouping payments starting as early as 2011, but the final rule only allowed for audits beginning in 2018 in a win for the health insurance industry.

In its overhaul of the audits, the rule eliminated a measure to adjust for errors in Medicare data. Regulators argued that “fee-for-service adjuster,” which helps ensure that CMS pays Medicare Advantage plans the same amount for each enrollee it would expect to pay in traditional Medicare, has no legal or actuarial basis.

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The suit seeks to bar the government from recovering funds from Humana using the audit procedures outlined in the rule. Humana is the second-largest provider of Medicare Advantage plans in the nation after UnitedHealthcare. Medicare premiums account for most of Humana’s revenue, and the company refocused its business entirely on government plans earlier this year.

A number of health insurers, including Cigna, Sutter Health and Kaiser Permanente, have been sued or paid fines to settle allegations of Medicare Advantage fraud and abuse in recent years.