The Trump administration has moved to appeal a judge’s decision that struck down a Medicare Advantage audit rule designed to recover billions in alleged overpayments from health insurers. The Department of Health and Human Services filed notice Friday that it would challenge the September ruling in the Fifth Circuit Court of Appeals, setting up another round of legal battles over Medicare Advantage oversight.
Judge Reed O’Connor of Texas’ Northern District dealt a significant blow to federal regulators in September when he vacated the Risk Adjustment Data Validation rule, commonly known as RADV. The Biden-era regulation would have allowed the Centers for Medicare & Medicaid Services to audit Medicare Advantage plans and claw back payments when insurers appeared to inflate patient diagnoses to boost reimbursements.
The RADV rule represented a major enforcement tool that could have recouped $4.7 billion from insurers over a decade. Under the regulation, CMS would sample Medicare Advantage beneficiaries to identify cases where health plans coded conditions more aggressively than warranted, then extrapolate those findings across entire contracts to demand repayments.
Humana, one of the nation’s largest Medicare Advantage insurers, challenged the rule in September 2023, arguing that CMS violated proper rulemaking procedures. The company specifically objected to regulators’ decision to remove a “fee-for-service adjuster” from the final rule without adequate public notice. That adjuster was designed to ensure Medicare Advantage plans received payments comparable to what CMS would spend on traditional Medicare beneficiaries.
O’Connor sided with Humana, finding that the agency failed to follow Administrative Procedures Act requirements when it eliminated the adjuster. The ruling delivered a major victory for Medicare Advantage payers who had fought the audit rule since its inception.
The Trump administration’s appeal comes as officials have pledged aggressive action against Medicare Advantage overpayments. The stakes are substantial, with Medicare projected to spend $84 billion more on MA enrollees this year than it would under traditional fee-for-service coverage, according to congressional advisory MedPAC. That excess spending stems largely from favorable selection of healthier beneficiaries and coding intensity issues.
CMS Administrator Dr. Mehmet Oz has repeatedly vowed to crack down on overpayments in the Medicare Advantage program. This spring, the agency announced plans to significantly expand audit capacity and clear a backlog of reviews from previous years. A CMS spokesperson declined to comment on the pending litigation.
The Friday filing did not detail the specific legal arguments the government plans to advance in its appeal. Legal experts expect the administration to challenge O’Connor’s interpretation of the Administrative Procedures Act requirements and argue that the fee-for-service adjuster removal was properly noticed.
The appeal ensures continued uncertainty for Medicare Advantage insurers as the program faces heightened scrutiny over payment accuracy and fraud prevention efforts.
