Humana 2014 Annual Report Download - page 31

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performance of a health care program or if there is an adverse decision against us under the federal False
Claims Act. As a government contractor, we may be subject to qui tam litigation brought by individuals
who seek to sue on behalf of the government, alleging that the government contractor submitted false claims
to the government. Litigation of this nature is filed under seal to allow the government an opportunity to
investigate and to decide if it wishes to intervene and assume control of the litigation. If the government
does not intervene, the lawsuit is unsealed, and the individual may continue to prosecute the action on his
or her own.
• CMS uses a risk-adjustment model which apportions premiums paid to Medicare Advantage, or MA, plans
according to health severity. The risk-adjustment model pays more for enrollees with predictably higher
costs. Under this model, rates paid to MA plans are based on actuarially determined bids, which include a
process that bases our prospective payments on a comparison of our beneficiaries’ risk scores, derived from
medical diagnoses, to those enrolled in the government’s traditional fee-for-service Medicare program
(referred to as “Medicare FFS”). Under the risk-adjustment methodology, all MA plans must collect and
submit the necessary diagnosis code information from hospital inpatient, hospital outpatient, and physician
providers to CMS within prescribed deadlines. The CMS risk-adjustment model uses this diagnosis data to
calculate the risk-adjusted premium payment to MA plans. We generally rely on providers, including certain
providers in our network who are our employees, to code their claim submissions with appropriate diagnoses,
which we send to CMS as the basis for our payment received from CMS under the actuarial risk-adjustment
model. We also rely on providers to appropriately document all medical data, including the diagnosis data
submitted with claims. In addition, we conduct medical record reviews, as part of our data and payment
accuracy compliance efforts, to more accurately reflect diagnosis conditions under the risk adjustment model.
These compliance efforts include the internal contract level audits described in more detail below.
CMS is continuing to perform audits of various companies’ selected MA contracts related to this risk
adjustment diagnosis data. These audits are referred to herein as Risk-Adjustment Data Validation Audits,
or RADV audits. RADV audits review medical records in an attempt to validate provider medical record
documentation and coding practices which influence the calculation of premium payments to MA plans.
In 2012, CMS released a “Notice of Final Payment Error Calculation Methodology for Part C Medicare
Advantage Risk Adjustment Data Validation (RADV) Contract-Level Audits.” The payment error
calculation methodology provides that, in calculating the economic impact of audit results for an MA
contract, if any, the results of the audit sample will be extrapolated to the entire MA contract based upon a
comparison to “benchmark” audit data in Medicare FFS (which we refer to as the "FFS Adjuster"). This
comparison to the Medicare FFS benchmark audit is necessary to determine the economic impact, if any,
of audit results because the government program data set, including any attendant errors that are present in
that data set, provides the basis for MA plans’ risk adjustment to payment rates. CMS already makes other
adjustments to payment rates based on a comparison of coding pattern differences between MA plans and
Medicare FFS data (such as for frequency of coding for certain diagnoses in MA plan data versus the
government program data set).
The final methodology, including the first application of extrapolated audit results to determine audit
settlements, is expected to be applied to the current round of RADV contract level audits being conducted
on 2011 premium payments. Selected MA contracts will be notified of an audit at some point after the close
of the final reconciliation for the payment year being audited. The final reconciliation occurs in August of
the calendar year following the payment year. We have been notified that certain of our Medicare Advantage
contracts have been selected for audit for contract year 2011.
Estimated audit settlements are recorded as a reduction of premiums revenue in our consolidated statements
of income, based upon available information. We perform internal contract level audits based on the RADV
audit methodology prescribed by CMS. Included in these internal contract level audits is an audit of our
Private Fee-For-Service business which we used to represent a proxy of the benchmark audit data in Medicare
FFS which has not yet been released. We based our accrual of estimated audit settlements for contract years
2011 (the first year that application of extrapolated audit results is applicable) through 2014 on the results
of these internal contract level audits and update our estimates as each audit is completed. Estimates derived
from these results were not material to our results of operations, financial position, or cash flows. However,