The Centers for Medicare and Medicaid Services has launched a series of regulatory actions targeting Medicare Advantage plans, using payment audits and tighter compliance rules to recover what federal investigators say are billions of dollars in improper payments. The effort centers on diagnoses that generate higher government reimbursements but lack evidence of actual patient treatment. Whether these measures can meaningfully cut costs without squeezing benefits for the more than 33 million Americans enrolled in private Medicare plans is the central policy tension heading into 2025.
Billions in Payments Tied to Unverified Diagnoses
The scale of the problem is not abstract. An evaluation by the HHS Office of Inspector General found that an estimated $7.5 billion in 2023 Medicare Advantage payments were linked to diagnoses reported only during health risk assessments or HRA-linked chart reviews, based on 2022 data. For a large share of those diagnoses, the OIG found no observable follow-up services in encounter data, raising the question of whether the conditions were being treated or simply documented to increase plan revenue. Investigators highlighted that this pattern persisted despite earlier warnings, suggesting that the financial incentives embedded in risk adjustment continue to outweigh the deterrent effect of sporadic oversight.
Health risk assessments are in-home or in-office screenings that Medicare Advantage plans use to evaluate enrollees, often conducted by third-party vendors. When those screenings produce diagnosis codes that do not appear in any other medical record and trigger no subsequent care, the financial incentive becomes hard to separate from the clinical one. The OIG’s analysis underscores how plans can record conditions during brief assessments, collect higher risk-adjusted payments, and face limited accountability if the patient never receives treatment for those conditions. That dynamic is what the government’s newest rules aim to disrupt by tying payments more tightly to documented medical necessity and by making it easier for auditors to challenge unsupported codes.
How RADV Audits and New Rules Tighten the Vise
CMS finalized its Risk Adjustment Data Validation rule, known as CMS-4185-F, establishing RADV as the government’s primary audit mechanism for verifying that diagnoses submitted by Medicare Advantage plans are supported by medical records. Under RADV, auditors compare diagnosis codes used for payment against underlying charts, and plans can be required to repay funds when no adequate documentation exists. CMS said these audits are necessary because unsupported diagnoses have led to improper payments and emphasized that for years it had not collected overpayments identified through earlier RADV efforts, leaving substantial sums unrecovered. The final rule formalizes a methodology for extrapolating audit findings across plan populations, significantly increasing the potential financial stakes.
Layered on top of RADV are two additional final rules that reshape plan behavior across the enrollment and care continuum. The 2024 Medicare Advantage and Part D rule introduced tighter marketing standards, provider directory accuracy requirements, prior authorization guardrails, and network adequacy expectations, reflecting concerns that some plans were steering beneficiaries with misleading information or limiting access once enrolled. The contract year 2025 regulation further strengthened enforcement and payment oversight, including changes to how plans can appeal RADV determinations and how CMS can monitor plan performance. In parallel, CMS delivered a technical report to Congress explaining how risk scores are constructed and outlining policy levers, such as coding intensity adjustments and condition-specific weights, that could be refined to reduce opportunities for gaming while still rewarding plans that manage complex patients effectively.
Flat Payment Rates Signal a Harder Squeeze
The regulatory pressure arrives alongside financial constraints that amplify its impact. Medicare Advantage payment rates are set to rise by just 0.09% next year, according to coverage of the rate notice, a nearly flat increase that sent insurer stocks lower amid expectations of higher medical cost trends. Plans that have relied on aggressive coding and favorable risk scores to pad revenue will face a double bind, audits clawing back past overpayments while future rate growth barely keeps pace with inflationary pressures in hospitals, physician services, and prescription drugs. In that environment, every percentage point lost to audit recoveries or coding adjustments could translate into narrower margins or pressure to scale back supplemental benefits that have made Medicare Advantage attractive to many seniors.
The March 2024 MedPAC report to Congress analyzed Medicare Advantage payment adequacy, risk adjustment, and coding intensity, providing baseline estimates and policy options that lawmakers frequently reference when debating potential savings. MedPAC has long concluded that coding intensity, where plans document more diagnoses per patient than traditional Medicare providers do for comparable populations, artificially inflates the benchmarks used to set MA payments, leading to higher program spending relative to fee-for-service. Tighter audits and more conservative coding adjustments could reduce that inflation, but the actual savings depend on how aggressively CMS implements the tools it now has. Rules published in the public inspection docket of the Federal Register are only as effective as the staffing, data systems, and enforcement culture deployed to carry them out, and plans are already signaling they will scrutinize every change for potential legal and operational challenges.
Prior Authorization Overhaul and Broader Cost Controls
The crackdown extends beyond payment audits into how plans manage day-to-day care decisions. CMS finalized its interoperability and prior authorization regulation, which requires impacted payers to process expedited prior authorization decisions within 72 hours and standard requests within 7 days, while also mandating electronic interfaces that can reduce administrative back-and-forth. The rule adds public reporting of prior authorization metrics starting in 2026 and 2027, giving regulators and consumers clearer visibility into how often plans deny or delay care. For patients, this is intended to mean faster, more predictable answers on whether a treatment or procedure will be covered; for plans, it constrains the use of slow-walked approvals as a de facto cost-control tool and exposes outlier practices to reputational and regulatory risk.
Taken together, these prior authorization reforms, RADV audits, and marketing and network rules amount to a multidimensional cost-control strategy that targets both overt overpayments and more subtle forms of utilization management. Policymakers are effectively betting that tighter oversight of coding and coverage decisions can generate savings without undermining the care coordination and extra benefits that distinguish Medicare Advantage from traditional Medicare. The unresolved question is how plans will respond: by investing in better documentation and clinical management to withstand audits, by trimming supplemental offerings and narrowing networks to preserve margins, or by challenging the rules in court and in Congress. As 2025 approaches, beneficiaries, providers, and insurers will be watching whether CMS’s new toolkit delivers cleaner payments and more reliable access, or whether the squeeze instead triggers a new round of disruption in the nation’s largest private Medicare program.
More From The Daily Overview
*This article was researched with the help of AI, with human editors creating the final content.
Nathaniel Cross focuses on retirement planning, employer benefits, and long-term income security. His writing covers pensions, social programs, investment vehicles, and strategies designed to protect financial independence later in life. At The Daily Overview, Nathaniel provides practical insight to help readers plan with confidence and foresight.
