Humana Sues to Block Medicare Rule That Threatens Clawbacks

Humana Inc. sued the US government to block a policy that would allow Medicare to claw back billions of dollars in payments to insurance companies.

(Bloomberg) — Humana Inc. sued the US government to block a policy that would allow Medicare to claw back billions of dollars in payments to insurance companies.

The suit in federal court challenges a rule finalized this year that sets out how the government will determine whether private Medicare Advantage plans for seniors were paid more than they should have been. The rule is “arbitrary and capricious” and should be thrown out, Humana said in the lawsuit filed Friday against the US Department of Health and Human Services.

The government expects to recover about $4.7 billion over 10 years as the audits reveal cases where Medicare Advantage insurers have exaggerated the severity of the patient populations they cover or were paid for diagnoses not backed up by medical records. Insurers argue that the process leaves no room for errors or omissions that are common in patient records.

The litigation threatens to further delay the yearslong audit process, with payments from 2011 still under review. The lawsuit is the first of its kind and was filed in the Northern District of Texas, a venue that has been sympathetic to other challenges to federal rules.

A Centers for Medicare and Medicaid Services spokesperson said the agency doesn’t comment on pending litigation. HHS didn’t respond to requests for comment. Humana shares were down 0.5% at 2:45 p.m. in New York.

Reverse Course

The rule “reverses course on a long-standing policy and eliminates the essential parity” between private Medicare Advantage plans and the traditional Medicare program, Humana spokesperson Mark Taylor said in a prepared statement.

The lawsuit argues that CMS didn’t follow the law governing new regulations when it set the policy, and that the agency can’t apply the rule retroactively.

Health insurers have billions of dollars at stake. Medicare Advantage is a growing source of profits for big insurers like Humana along with rivals UnitedHealth Group Inc. and CVS Health Corp. About 31 million people — about half those on Medicare — are in private plans now. Humana has almost 5.8 million Medicare Advantage members, making it the second-largest participant behind UnitedHealth. Medicare premiums make up the bulk of Humana’s revenue.

Plans get fixed monthly payments to cover members’ medical costs, with more money for sicker patients. How those payments are adjusted to account for patients’ illnesses has been the subject of intense debate. Federal watchdogs and whistleblowers have raised alarms about how the system can be exploited for profit.

‘Overhaul Needed’

The Medicare Payment Advisory Commission, a Congressional advisory group, warned in a March report that the $400 billion Medicare Advantage program is wasting taxpayer money. Medicare spends 6% more on beneficiaries in private plans compared to what it would pay in the traditional program, the report said.

“A major overhaul of MA policies is urgently needed” to close the gap, MedPAC said then.

Insurers say they’re paid appropriately for the risk they take on, and that the plans provide seniors superior care and added benefits that traditional Medicare doesn’t cover.

Humana’s complaint focuses on the process Medicare uses to ensure payments to plans match up with the medical needs documented in patients’ records. The insurer argues that the audits would unfairly penalize Medicare Advantage plans for errors in patient records by not accounting for how common those errors are in the traditional Medicare program. Because the errors in traditional Medicare data influence the calculation of how Medicare Advantage plans are paid, audits must take those errors into account, Humana argues.

It also argues that Medicare changed its justification for that policy between when it proposed the rule in 2018 and the final version this year. The company asked the court to vacate the rule and bar Medicare from recovering funds from Humana using the contested audit procedures.

The case is Humana v. Becerra, 4:23-cv-00909, US District Court, Northern District of Texas (Fort Worth).

–With assistance from Madlin Mekelburg.

(Updates with CMS response starting in fifth paragraph.)

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