Opinion

UnitedHealthcare Insurance Company v. Xavier Becerra (REISSUE)

Court: Court of Appeals for the D.C. Circuit
Filed: Nov 1, 2021
Status: Published
Cited by: 0 cases
Authority: More cited than 21.8%

The opinion

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 3, 2020 Decided August 13, 2021

Reissued November 1, 2021

No. 18-5326

UNITEDHEALTHCARE INSURANCE COMPANY, ET AL.,

APPELLEES

XAVIER BECERRA, IN HIS OFFICIAL CAPACITY AS SECRETARY

OF HEALTH AND HUMAN SERVICES, ET AL.,

APPELLANTS

Appeal from the United States District Court

for the District of Columbia

(No. 1:16-cv-00157)

Weili J. Shaw, Attorney, U.S. Department of Justice,

argued the cause for appellants. With him on the briefs were

Ethan P. Davis, Acting Assistant Attorney General, and Mark

B. Stern, Attorney. Michael S. Raab, Attorney, entered an

appearance.

Daniel Meron argued the cause for appellees. With him

on the brief was Matthew M. Shors.

David W. Ogden, Brian M. Boynton, and Kevin M. Lamb

were on the brief for amicus curiae America’s Health

Insurance Plans in support of appellees.

Before: ROGERS, PILLARD and WALKER, Circuit Judges.

Opinion for the Court filed by Circuit Judge PILLARD.

PILLARD, Circuit Judge: UnitedHealthcare Insurance

Company and other Medicare Advantage insurers under the

umbrella of UnitedHealth Group Incorporated (collectively,

UnitedHealth) challenge a rule the Centers for Medicare and

Medicaid Services (CMS) promulgated under the Medicare

statute, 42 U.S.C. §§ 1301-1320d-8, 1395-1395hhh. The

Overpayment Rule is part of the government’s ongoing effort

to trim unnecessary costs from the Medicare Advantage

program. Neither Congress nor CMS has ever treated an

unsupported diagnosis for a beneficiary as valid grounds for

payment to a Medicare Advantage insurer. Consistent with

that approach, the Overpayment Rule requires that, if an

insurer learns a diagnosis it submitted to CMS for payment

lacks support in the beneficiary’s medical record, the insurer

must refund that payment within sixty days. The Rule

couldn’t be simpler. But understanding UnitedHealth’s

challenge requires a bit of context.

As explained in more detail below, people who are

eligible for Medicare may elect to receive their health

insurance through a private insurer under Medicare

Advantage rather than directly through the government under

traditional Medicare, and approximately forty percent of

beneficiaries have chosen Medicare Advantage. CMS pays

private Medicare Advantage insurers, in a prospective lump

sum each month, the amount it expects a month’s care would

otherwise cost CMS in direct payments to healthcare

providers treating the same beneficiaries under traditional

Medicare. For each Medicare Advantage beneficiary, CMS

pays the insurer a per-capita amount that varies according to

demographic characteristics and diagnoses that CMS has

determined, based on its past experience in traditional

Medicare, to be predictive of healthcare costs.

Payments to the Medicare Advantage program depend on

participating insurers accurately reporting to CMS their

beneficiaries’ salient demographic information and medically

documented diagnosis codes. To better control erroneous

payments, including those garnered from reported—but

unsupported—diagnoses, Congress in 2010 amended the

Medicare program’s data-integrity provisions. The

amendment specified a sixty-day deadline for reporting and

returning identified overpayments and confirmed that such

payments not promptly returned may trigger liability under

the False Claims Act. See id. § 1320a-7k(d). CMS

promulgated the Overpayment Rule to implement those

controls on Medicare Advantage. See 42 C.F.R. § 422.326.

As relevant here, the Overpayment Rule establishes that, if a

Medicare Advantage insurer has received a payment

increment for a beneficiary’s diagnosis and discovers that

there is no basis for that payment in the underlying medical

records, that is an overpayment that the insurer must correct

by reporting it to CMS within sixty days for refund. See

Medicare Program; Contract Year 2015 Policy and Technical

Changes to the Medicare Advantage and the Medicare

Prescription Drug Benefit Programs, 79 Fed. Reg. 29,844,

29,921 (May 23, 2014) (hereinafter Overpayment Rule), J.A.

64.

UnitedHealth claims that it is unambiguous in the text of

the Medicare statute that the Overpayment Rule is subject to a

principle of “actuarial equivalence,” and that the Rule fails to

comply. See 42 U.S.C. § 1395w-23(a)(1)(C)(i). But actuarial

equivalence does not apply to the Overpayment Rule or the

statutory overpayment-refund obligation under which it was

promulgated. Reference to actuarial equivalence appears in a

different statutory subchapter from the requirement to refund

overpayments, and neither provision cross-references the

other. Further, the actuarial-equivalence requirement and the

overpayment-refund obligation serve different ends. The role

of the actuarial-equivalence provision is to require CMS to

model a demographically and medically analogous

beneficiary population in traditional Medicare to determine

the prospective lump-sum payments to Medicare Advantage

insurers. The Overpayment Rule, in contrast, applies after the

fact to require Medicare Advantage insurers to refund any

payment increment they obtained based on a diagnosis they

know lacks support in their beneficiaries’ medical records.

UnitedHealth contends that the actuarial-equivalence

principle reaches beyond its statutory home to impose an

implied—and functionally prohibitive—legal precondition on

the requirement to return known overpayments. As

UnitedHealth would have it, Congress clearly intended

enforcement of the statutory overpayment-refund obligation,

which the Overpayment Rule essentially parrots, to depend on

a prior determination of actuarial equivalence. That principle,

UnitedHealth says, prevents CMS from recovering

overpayments under the Rule unless CMS first shows that the

rate of payment errors to healthcare providers in traditional,

fee-for-service Medicare is lower than the rate of payment

errors to the Medicare Advantage insurer, or that CMS

comprehensively audited the data from traditional Medicare

before using it in the complex regression model—the CMS

Hierarchical Condition Category (CMS-HCC) risk-adjustment

model—that predicts the cost to insure Medicare Advantage

beneficiaries.

There is no legal or factual basis for UnitedHealth’s

claim. Actuarial equivalence is a directive to CMS. It

describes the goal of the risk-adjustment model Congress

directed CMS to develop. It does not separately apply to the

requirement that Medicare Advantage insurers avoid known

error in their payment requests. It assuredly does not

unambiguously demand that, before CMS can collect known

overpayments from Medicare Advantage insurers, it must

engage in unprecedented self-auditing to eliminate an

imagined bias in the body of traditional Medicare data CMS

used in its regressions. The implausibility that Congress

would have so intended is underscored by the lack of

parallelism between the context and effects of, on one hand,

unsupported diagnoses in the traditional Medicare data CMS

uses to model generally applicable risk factors and, on the

other, the specific errors the Overpayment Rule targets.

Even if actuarial equivalence applied as UnitedHealth

suggests, it would be UnitedHealth’s burden to show the

systematically skewed inaccuracies on which its theory

depends, which it has not done. Also fatal to UnitedHealth’s

claim is that it never challenged the values CMS assigned to

the risk factors it identified or the level of the capitation

payments resulting from CMS’s risk-adjustment model. It

cannot belatedly do so in the guise of a challenge to the

Overpayment Rule.

UnitedHealth’s next claim relies on the Medicare

statute’s requirement that CMS annually compute and publish

certain traditional Medicare data “using the same

methodology as is expected to be applied in making

payments” to Medicare Advantage insurers. Id. § 1395w-

23(b)(4)(D). That “same methodology” requirement does not

bear on the overpayment-refund obligation. Meant to

facilitate Medicare Advantage insurers’ bidding for contracts

with CMS, that requirement merely clarifies that, in

computing the data it publishes, CMS must use the same risk-

adjustment model that it already uses to set monthly payments

to Medicare Advantage insurers; like the actuarial-

equivalence requirement, it says nothing about what

constitutes an “overpayment.”

UnitedHealth’s final claim is that the Overpayment Rule

is arbitrary and capricious in violation of the Administrative

Procedure Act (APA). That claim hinges on what

UnitedHealth sees as an unexplained inconsistency between

the Overpayment Rule and another error-correction

mechanism to which Medicare Advantage insurers are

subject: Risk Adjustment Data Validation (RADV) audits.

With those audits, CMS proposed a systemic adjustment

involving the traditional Medicare data used to model risk

factors to account for any errors in that data set before

requiring any contract-level repayments from insurers.

UnitedHealth sees inconsistency in obligating repayments

under the Overpayment Rule without any such adjustment.

But the system-level adjustment that CMS said it would apply

in the context of contract-level RADV audits came in direct

response to concerns about actuarial equivalence. Because

we hold that the actuarial-equivalence requirement does not

pertain to the statutory overpayment-refund obligation or the

Overpayment Rule challenged here, and the two error-

correction mechanisms are plainly distinguishable in other

ways, CMS’s one-time intention to apply the adjustment in

one context but not the other was reasonable.

In sum, nothing in the Medicare statute’s text, structure,

or logic applies actuarial equivalence to its separate

overpayment-refund obligation, and thus the Overpayment

Rule does not violate actuarial equivalence. For much the

same reasons, we reject UnitedHealth’s claim that the Rule

violates the statute’s “same methodology” requirement, and

we also deny its claim that the Rule is arbitrary and capricious

as an unexplained departure from prior policy. We therefore

reverse the judgment of the district court vacating the

Overpayment Rule and remand this case with orders to enter

judgment in favor of Appellants, except with respect to the

Overpayment Rule’s definition of “identified.”

BACKGROUND

Overpayment to Medicare Advantage insurers is a serious

drain on the Medicare program’s finances. In 2016 alone,

audits of the data submitted by Medicare Advantage insurers

to CMS showed that CMS paid out an estimated $16.2 billion

for unsupported diagnoses, equal to “nearly ten cents of every

dollar paid to Medicare Advantage organizations.” United

States ex rel. Silingo v. WellPoint, Inc., 904 F.3d 667, 673

(9th Cir. 2018) (citing James Cosgrove, U.S. Gov’t

Accountability Off., GAO-17-761T, Medicare Advantage

Program Integrity: CMS’s Efforts to Ensure Proper Payments

1 (2017), https://www.gao.gov/assets/690/685934.pdf).

UnitedHealth is the Nation’s largest provider of Medicare

Advantage plans. Meredith Freed et al., A Dozen Facts About

Medicare Advantage in 2020, Kaiser Family Found. (Jan. 13,

2021), https://www.kff.org/medicare/issue-brief/a-dozen-

facts-about-medicare-advantage-in-2020/.

A. Statutory and regulatory background

Since 1965, most older adults and many people with

disabilities in the United States have received their health

insurance through Medicare, administered by CMS. In

Medicare Parts A and B, or “traditional” Medicare, CMS

itself acts as the insurer, paying healthcare providers directly

for beneficiaries’ medical services. Medicare Part A covers

inpatient hospital treatment and other institutional care and is

generally provided without charge to Medicare-eligible

individuals. But for outpatient services, like visits to doctors’

offices, the Medicare statute provides Medicare-eligible

individuals a choice of whether and how to receive such

coverage: They can receive that, too, by having the

government pay providers for services, under Medicare Part

B; or they can opt for private insurance paid for at least in part

by the government, under Medicare Part C, also known as

Medicare Advantage (and formerly known as

Medicare+Choice).

Unlike Medicare Part A, coverage under Medicare Part B

and Medicare Advantage generally requires payments from

beneficiaries to the government or, if applicable, private

insurance companies. Medicare Advantage insurers must

provide coverage of at least the same services as Medicare-

eligible individuals would receive through traditional

Medicare, 42 U.S.C. § 1395w-22(a), and those private

insurers often attract subscribers by offering additional

benefits, such as dental and vision coverage, that they are able

to include due to efficiencies and other cost-saving measures.

More than twenty-four million Americans, or nearly forty

percent of all Medicare beneficiaries, choose to receive their

health insurance through Medicare Advantage. See generally

Freed et al., supra.

Medicare Parts A and B and Medicare Advantage pay

healthcare providers in different ways. Under Medicare Part

A, CMS pays a hospital or institutional care provider based on

a beneficiary’s diagnoses at the time of discharge, which

translate to a “Diagnosis-Related Group.” Under Medicare

Part B, CMS pays outpatient providers on a fee-for-service

basis under fee schedules that set the payment for each service

provided, such as an office visit, examination, or

immunization. A beneficiary’s diagnoses do not directly

affect the level of payment made to a healthcare provider

under Part B, but because a service is reimbursable only if it

is “reasonable and necessary for the diagnosis or treatment of

illness or injury,” 42 U.S.C. § 1395y(a)(1)(A), providers still

must generally submit diagnosis codes to CMS showing why

a beneficiary received the services that she did.

Private Medicare Advantage insurers likewise pay

healthcare providers based on the services provided to

beneficiaries but, as noted above, under Part C those insurers

themselves receive in advance a monthly lump sum from

CMS for every beneficiary that they enroll, without regard to

the services that the beneficiaries will actually receive. The

prospective, lump-sum payment approach has the potential to

curb costly and unnecessary overtreatment that the fee-for-

service approach tends to encourage, and it favors

preventative care and other health-protective measures,

enabling cost efficiencies that can elude a fee-for-service

system. See Advance Notice of Methodological Changes for

CY 2004 Medicare+Choice Payment Rates, at 5 (Mar. 28,

2003), J.A. 115. The core idea is that a Medicare Advantage

insurer that covers all of a beneficiary’s health care at least as

well as traditional Medicare but does so at lower cost may

pocket the difference as earned revenue, or pass along that

revenue to beneficiaries in the form of extra benefits meant to

entice and retain subscribers.

It is the Medicare statute that requires CMS to pay

Medicare Advantage insurers in advance, on a monthly basis,

for each of the Medicare-eligible beneficiaries that they

insure. 42 U.S.C. § 1395w-23(a)(1)(A). The statute also

requires CMS to adjust those monthly, per-capita payments to

reflect what traditional, fee-for-service Medicare paid in a

base year for a beneficiary population modeled—by reference

to demographics, diagnoses, and other factors CMS selects—

to be actuarially equivalent to the Medicare Advantage

insurer’s beneficiary population. Id. § 1395w-23(a)(1)(C)(i).

Specifically, Congress instructed that the Secretary of Health

and Human Services (HHS)

shall adjust the payment amount . . . for such risk

factors as age, disability status, gender, institutional

status, and such other factors as the Secretary

determines to be appropriate, including adjustment for

health status . . . , so as to ensure actuarial

equivalence. The Secretary may add to, modify, or

substitute for such adjustment factors if such changes

will improve the determination of actuarial

equivalence.

Id. The point of the Secretary’s discretion to select, and

obligation to apply, risk factors is “to ensure that [Medicare

Advantage insurers] are paid appropriately for their plan

enrollees (that is, less for healthier enrollees and more for less

healthy enrollees).” Medicare Program; Establishment of the

Medicare Advantage Program, 70 Fed. Reg. 4588, 4657 (Jan.

28, 2005), J.A. 92. Indeed, “the goal of risk adjustment” is

“to pay [Medicare Advantage] plans accurately.” 152 Cong.

Rec. S438-02 (daily ed. Feb. 1, 2006) (statement of Sen.

Grassley).

Specifically, identifying salient risk factors enables CMS

to determine prospectively, based on Medicare Advantage

beneficiaries’ actuarially relevant, known demographic and

health characteristics, the per-capita payment rate that will

fairly compensate that Medicare Advantage insurer. More

broadly, the demographic- and health-adjusted, capitated

payment scheme is designed to blunt the incentives to enroll

only the healthiest, and thus least expensive, beneficiaries

while steering clear of the sickest and costliest—thereby

rewarding Medicare Advantage insurers to the extent that they

achieve genuine efficiencies over traditional Medicare in

addressing the same health conditions. See Gregory C. Pope

et al., Risk Adjustment of Medicare Capitation Payments

Using the CMS-HCC Model, Health Care Fin. Rev., Summer

2004, at 119, 119-20, J.A. 487-88; see also H.R. Rep. No. 105-

217, at 585 (1997) (Conf. Rep.); H.R. Rep. No. 108-391, at

524-25 (2003) (Conf. Rep.).

To adjust the monthly payments, CMS uses a model—

called the CMS Hierarchical Condition Category, or CMS-

HCC, risk-adjustment model—that it periodically studies and

improves based on clinical information and cost data. The

model isolates demographic characteristics CMS has

determined to be predictive of differing costs of care,

including the risk factors expressly mentioned in the statute:

age, sex, disability status, and whether the beneficiary lives in

a long-term institutional setting. See 42 U.S.C. § 1395w-

23(a)(1)(C)(i). It adjusts for health status by isolating cost-

predictive diagnoses. CMS uses expert judgment to

determine, for example, “which diagnosis codes should be

included, how they should be grouped, and how the

diagnostic groupings should interact for risk adjustment

purposes.” Gregory C. Pope et al., Evaluation of the CMS-

HCC Risk Adjustment Model: Final Report 8 (Mar. 2011),

J.A. 525. Diagnostic categories must be reasonably specific

and clinically meaningful. And, to fine-tune its predictive

utility, CMS’s model accounts for interactions between

multiple diagnoses where total joint costs are more than

additive. CMS also establishes a hierarchy of diagnoses to

avoid double counting, zeroing out the cost effects of less

severe disease manifestations when a patient also has a more

severe diagnosis that fully accounts for treatment costs for

both. Id.

CMS’s risk-adjustment model applies a regression

analysis to the mass of data from traditional Medicare for a

previous year to convert each demographic and health

characteristic into an expected cost of coverage. See id. at 2,

J.A. 519. CMS inputs traditional Medicare beneficiaries’

data, including the diagnosis codes that healthcare providers

are required to report (even though, as noted above, CMS

itself bases Medicare Part B payments on services, not

diagnoses), along with the total cost for covering those

beneficiaries. The model isolates the anticipated cost of care

associated with each demographic and health characteristic by

first determining the average marginal cost of that

characteristic in dollars and then dividing that dollar amount

by traditional Medicare’s average cost per beneficiary. That

process produces a “relative factor” for each demographic and

health characteristic. The model “use[s] data from a large

pool of beneficiaries (full sample sizes over 1 million for the

CMS-HCC models) to estimate predicted costs on average for

each of the component factors (e.g., age-sex, low income

status, individual disease groups).” Id. at 5, J.A. 522. Using

regression analysis on such a vast data sample mutes the

effect of individual errors in traditional Medicare data, so long

as errors are not so widespread or systemically skewed as to

raise or lower the values of particular relative factors. See id.;

see also Amy Gallo, A Refresher on Regression Analysis,

Harv. Bus. Rev. (Nov. 4, 2015), https://hbr.org/2015/11/a-

refresher-on-regression-analysis.

To enable CMS to apply those relative factors to pay

Medicare Advantage insurers at the correct risk-adjusted rate,

the insurers must report to CMS the salient demographic and

health characteristics of each of their Medicare-eligible

beneficiaries. 42 C.F.R. § 422.310(b), (d). CMS then

combines the relative factors for a particular beneficiary to

arrive at her individualized overall “risk score.” See Pope et

al., Evaluation of the CMS-HCC Risk Adjustment Model:

Final Report 15, J.A. 532. CMS posits that an “average

beneficiary” in traditional Medicare has a risk score of 1.0. If

a Medicare Advantage beneficiary has a risk score of exactly

1.0, CMS pays the insurer the base payment rate for that

beneficiary’s location. For Medicare Advantage beneficiaries

with risk scores above 1.0, meaning they are of higher-than-

average risk, CMS pays insurers more than the base payment

rate; for beneficiaries with risk scores below 1.0, the

payments are correspondingly lower than the base rate. But

Medicare Advantage beneficiaries are not presumptively

scored as 1.0; the per-capita payments that CMS makes to

insurers instead depend on an aggregation of the

beneficiaries’ cost-predictive demographic and diagnostic

factors.

CMS illustrates the operation of relative factors with an

example:

[U]nder the 2014 model, a 72-year-old woman living

independently (relative factor 0.348), with diabetes

without complications (relative factor 0.118), and

multiple sclerosis (relative factor 0.556) would have a

total risk score of 1.022, which means that she is

expected to cost Medicare slightly more than the

average traditional Medicare beneficiary (who would

by definition have a risk score of 1.0).

Gov’t Br. 7 (citing Announcement of CY 2014 Medicare

Advantage Capitation Rates and Medicare Advantage and

Part D Payment Policies and Final Call Letter, at 67-68 (Apr.

1, 2013), J.A. 276-77). In other words, as a woman near the

younger end of the Medicare-eligible population and living

outside any long-term institutional setting, this sample

beneficiary starts with a risk score well below the overall

Medicare average. The fact that she suffers from diabetes

raises her risk score, but not by much, presumably because

she has not experienced complications and ordinary diabetes

care is not as costly as many other conditions common among

older Americans. The larger bump, putting her over the

average predicted cost of care even for the cost-intensive

Medicare population, is that she suffers from multiple

sclerosis. A Medicare Advantage insurer providing coverage

to this woman therefore “would be paid 102.2 percent of the

relevant base rate.” Id. at 8.

This example illustrates the importance of risk-adjusted

payment. Assume a similar woman, but without her

diagnoses. With a risk score of just 0.348, her care would

then be predicted to be far less expensive than that of the

average Medicare beneficiary, whose risk score is, by

definition, 1.0. If Medicare Advantage insurers were paid an

unadjusted base rate for every beneficiary, they could receive

an enormous, and unjustified, net surplus insofar as they

enrolled beneficiaries with such low anticipated costs.

Conversely, an unadjusted, per-capita base payment would

likely fall far short of fairly compensating a Medicare

Advantage insurer for the costs of care for the woman in the

example with both of the posited diagnoses, and the shortfall

would only grow with any added complications or diagnoses

she developed.

There is some evidence that Medicare Advantage insurers

in fact have tended to attract healthier-than-average

beneficiaries—perhaps because of the additional premiums

they may charge, and the well-established correlation between

wealth and health. See Is Medicare Advantage More Efficient

than Traditional Medicare?, Nat’l Bureau of Econ. Rsch.

(Mar. 2016), https://www.nber.org/bah/2016no1/medicare-

advantage-more-efficient-traditional-medicare; see also Pope

et al., Risk Adjustment of Medicare Capitation Payments

Using the CMS-HCC Model, at 119-20, J.A. 487-88; Pope et

al., Evaluation of the CMS-HCC Risk Adjustment Model:

Final Report 7, J.A. 524. Without the corrective provided by

risk-adjusting the capitated payment amounts, payment levels

would not be fair, and incentives to attract the healthy and

deflect the sick would be overwhelming.

CMS determines the base payment rate—which, again, is

the amount a Medicare Advantage insurer would receive for

any beneficiary with a risk score of exactly 1.0, and which is

the denominator for calculation of every capitated payment to

Medicare Advantage—by reference to traditional Medicare’s

per-capita expenditures in a particular place and bids

submitted by Medicare Advantage insurers. Each county in

the United States has its own base rate, and every year

Medicare Advantage insurers bid for contracts after CMS

announces each county’s benchmark for the coming year. See

42 U.S.C. § 1395w-23(b)(1)(B). To inform Medicare

Advantage insurers’ bids to participate in the program, the

Medicare statute requires CMS to compute and publish, on an

annual basis, the “average risk factor” for traditional

Medicare beneficiaries in each county. Id. § 1395w-

23(b)(4)(D). The statute specifies that the published average

risk factor must be “based on diagnoses for inpatient and

other sites of service, using the same methodology as is

expected to be applied in making payments under subsection

(a),” i.e., the subsection that includes the actuarial-

equivalence requirement. Id. UnitedHealth separately claims

the “same methodology” criterion supports its challenge to the

Overpayment Rule.

CMS’s regulations have long obligated Medicare

Advantage insurers to certify the accuracy of the data that

they report to CMS. Since 2000, those regulations have made

it “a condition for receiving a monthly payment” that a

Medicare Advantage insurer

agrees that its chief executive officer (CEO), chief

financial officer (CFO), or an individual delegated the

authority to sign on behalf of one of these officers,

and who reports directly to such officer, must request

payment under the contract [with CMS] on a

document that certifies (based on best knowledge,

information, and belief) the accuracy, completeness,

and truthfulness of relevant data that CMS requests.

42 C.F.R. § 422.504(l); see also United States ex rel. Swoben

v. UnitedHealthcare Ins. Co., 848 F.3d 1161, 1168 & n.2 (9th

Cir. 2016) (citing 42 C.F.R. § 422.502(l) (2000)). CMS’s

regulations specifically apply that obligation to the data

Medicare Advantage insurers report to CMS to identify their

beneficiaries’ actuarially salient attributes—i.e., demographic

and health characteristics, including diagnosis codes. See 42

C.F.R. § 422.504(l)(2) (referencing data reported under 42

C.F.R. § 422.310).

But, as Congress has recognized, even accurate diagnosis

codes that Medicare Advantage insurers report can lead to

disproportionately high payments to insurers. That is because

Medicare Advantage insurers have a financial incentive to

code intensely—i.e., to make sure that they report to CMS

their beneficiaries’ every diagnosis—given that their monthly,

per-capita payments are higher to the extent that their

beneficiaries have more or graver diagnoses. Meanwhile,

healthcare providers to traditional Medicare beneficiaries lack

that same incentive because their payments from CMS depend

on services rendered, not diagnoses. See U.S. Gov’t

Accountability Off., GAO-12-51, Medicare Advantage: CMS

Should Improve the Accuracy of Risk Score Adjustments for

Diagnostic Coding Practices 2 (Jan. 2012), J.A. 546. Thus, if

one were to imagine that traditional Medicare and Medicare

Advantage had identical populations of beneficiaries, the

latter would generally end up reporting more diagnoses (and

therefore appear sicker and receive additional payments) even

though their true health conditions were the same. To account

for that difference in incentives and coding practices,

Congress enacted a Coding Intensity Adjuster that reduces the

risk scores of all Medicare Advantage beneficiaries by a

specified percentage. See Health Care and Education

Reconciliation Act of 2010, Pub. L. No. 111-152,

§ 1102(e)(3)(D), 124 Stat. 1029, 1046. For 2019, Congress

set that reduction at a minimum of 5.9 percent. 42 U.S.C.

§ 1395w-23(a)(1)(C)(ii)(III). The Coding Intensity Adjuster

does not, however, address unsupported or inaccurate codes

reported by Medicare Advantage insurers, but only the

practice, relative to traditional Medicare, of overreporting

codes that are nonetheless accurate.

UnitedHealth’s challenge to the Overpayment Rule

adverts to yet another data-integrity measure providing for

Risk Adjustment Data Validation, or RADV, audits. To

supplement the regulatory obligations on Medicare Advantage

insurers to certify the accuracy of the diagnosis codes and

other data they report to CMS, and because CMS cannot

confirm in real time the data insurers submit for their millions

of beneficiaries, CMS seeks to confirm that its payments to

insurers are correct by retrospectively spot-checking the data

submissions going back several years. See 42 C.F.R.

§ 422.310(e); see also Medicare Program; Policy and

Technical Changes to the Medicare Advantage and the

Medicare Prescription Drug Benefit Programs, 74 Fed. Reg.

54,634, 54,674 (Oct. 22, 2009), J.A. 96. For these RADV

audits, CMS selects a subset of Medicare Advantage insurers

and compares a sample of their reported diagnosis codes to

the underlying medical charts and records for the relevant

beneficiaries. See Medicare Program; Policy and Technical

Changes to the Medicare Advantage and the Medicare

Prescription Drug Benefit Programs, 74 Fed. Reg. at 54,674,

J.A. 96. The Medicare Advantage insurers must return to

CMS any payments that an audit reveals were based on

unsupported diagnoses—that is, diagnoses reported to CMS

but that the audit found lack support in the relevant

beneficiaries’ medical record documentation. See id.

CMS has conducted such audits for well over a decade,

and their results show that a significant number of reported

diagnoses are in fact unsupported. See, e.g., U.S. Dep’t of

Health & Human Servs., Off. of Inspector Gen., Risk

Adjustment Data Validation of Payments Made to PacifiCare

of Texas for Calendar Year 2007, A-06-09-00012, at 4 (May

2012), J.A. 471 (stating that the risk scores for forty-three out

of 100 sampled beneficiaries of the audited insurer “were

invalid because the diagnoses were not supported”); U.S.

Dep’t of Health & Human Servs., Off. of Inspector Gen., Risk

Adjustment Data Validation of Payments Made to PacifiCare

of California for Calendar Year 2007, A-09-09-00045, at i

(Nov. 2012), J.A. 476 (stating that the risk scores for forty-

five out of 100 sampled beneficiaries “were invalid because

the diagnoses were not supported by the documentation that

[the Medicare Advantage] insurer provided”).

Medicare Advantage insurers’ obligation to return

mistaken payments pursuant to RADV audits differs from

their obligation under the Overpayment Rule: With the

former, insurers are required to refund payments based on

unsupported diagnoses that CMS discovers through its audit,

whereas with the latter, insurers are required to refund

payments based on unsupported diagnoses that they

themselves discover through the course of their business.

CMS also audits traditional Medicare data, although it does so

through different mechanisms that may result in a lower

percentage of traditional Medicare payment claims being

audited than Medicare Advantage ones. See Gov’t Br. 35-38;

Appellees Br. 42-43.

In 2008, CMS announced an expansion of its RADV

audit program for Medicare Advantage: Rather than requiring

repayments only for the unsupported diagnosis codes

identified in the limited sample itself, CMS would take the

payment error in an audited sample, extrapolate that error rate

across CMS’s entire contract with that Medicare Advantage

insurer, and require the insurer to make a repayment based on

the extrapolated, or contract-level, degree of error. See

Medicare Program; Policy and Technical Changes to the

Medicare Advantage and the Medicare Prescription Drug

Benefit Programs, 74 Fed. Reg. at 54,674, J.A. 96; see also

Announcement of Calendar Year (CY) 2009 Medicare

Advantage Capitation Rates and Medicare Advantage and

Part D Payment Policies, at 22 (Apr. 7, 2008). (Because not

all errors are created equal—that is, some are more costly

than others—the extrapolated error rate would account for the

magnitude of the errors by factoring in the difference between

original and corrected payment amounts in an audited

sample.) In late 2010, CMS sought comments on its proposal

for contract-level RADV audits, and in early 2011 various

commenters, including UnitedHealth and the American

Academy of Actuaries, objected.

One criticism the commenters leveled at expanded

RADV audits was that, “[u]nder sound actuarial principles, it

is impossible to know whether [Medicare Advantage insurers]

have been paid accurately by conducting a review of the

medical records supporting [Medicare Advantage] coding,

without also considering the medical records supporting

[traditional Medicare] coding.” Aetna Inc.’s Comments on

Proposed Payment Error Calculation Methodology for Part C

Organizations Selected for Contract-Level RADV Audits, at 4

(Jan. 21, 2011), J.A. 298. In other words, “CMS must audit

and validate both [a Medicare Advantage insurer’s data and

the traditional Medicare data that goes into the risk-

adjustment model] before extrapolating any potential RADV

audit results” and requiring the insurer to return amounts

thereby identified as excessive. Humana Inc., Comment on

RADV Sampling and Error Calculation Methodology, at 3

(Jan. 21, 2011), J.A. 334. “If it does not, CMS will

dramatically underpay [Medicare Advantage insurers] for the

benefits they provided to Medicare beneficiaries,” in violation

of the Medicare statute’s actuarial-equivalence requirement.

Id.; see also id. at 5, J.A. 336.

In a move that UnitedHealth describes as important

context for this case, CMS responded to the comments by

announcing in 2012 that it would apply a Fee-for-Service, or

FFS, Adjuster before requiring repayments based on contract-

level RADV audits. With the FFS Adjuster, Medicare

Advantage insurers would be liable for repayments only to the

extent that their extrapolated, contract-level payment errors,

i.e., the dollar amounts that they received in error, exceed any

offsetting payment error in traditional Medicare. CMS said

that it would determine the actual amount of the FFS Adjuster

“based on a RADV-like review of records submitted to

support [traditional Medicare] claims data.” Notice of Final

Payment Error Calculation Methodology for Part C Medicare

Advantage RADV Contract-Level Audits, at 5 (Feb. 24,

2012), J.A. 398.

But CMS then conducted an empirical study from which

it discovered that “errors in [traditional Medicare] claims data

do not have any systematic effect on the risk scores calculated

by the CMS-HCC risk adjustment model, and therefore do not

have any systemic effect on the payments made to [Medicare

Advantage insurers].” CMS, Fee for Service Adjuster and

Payment Recovery for Contract Level Risk Adjustment Data

Validation Audits 5 (Oct. 26, 2018) (hereinafter CMS Study),

J.A. 731. That result is unsurprising. Providers paid on a fee-

for-service basis, as is the case in Medicare Part B, would

appear to lack incentives that bear on Medicare Advantage

insurers to overreport costly diagnoses or other factors

predictive of worse-than-average health, and any

underreporting of diagnoses is likely the result of not catching

the least costly beneficiaries with a given diagnosis (perhaps

because they require little or no treatment), which would tend

to reduce the average cost of a particular condition. See Gov’t

Br. 45-46. And individual errors within the mass of data used

to model a relative factor would tend to have little to no effect

on the factor’s value, given the large sample sizes—on the

order of one million beneficiaries, see Pope et al., Evaluation

of the CMS-HCC Risk Adjustment Model: Final Report 5, J.A.

522—together with “the fact that the relative factors are

summed across each enrollee’s [hierarchical condition

categories] and then across a plan’s enrollment, lead[ing] the

inaccuracies to mitigate each other due to offsetting effects,”

CMS Study at 5, J.A. 731. Based on the study results, CMS

announced in October 2018 that it would not, after all, use an

FFS Adjuster for contract-level RADV audits. See CMS

Study at 5-6, J.A. 731-32. That conclusion is preliminary,

and the review and rulemaking are ongoing. See Oral Arg.

Tr. 14:4-22. In the meantime, CMS does not use any FFS

Adjuster in that context.

Against the backdrop of concern about costly errors in

the data reported by Medicare Advantage insurers, but before

CMS even solicited comments on the proposed FFS Adjuster

to contract-level RADV audits it ultimately deemed

unnecessary, Congress enacted the provision that undergirds

the Overpayment Rule. The Patient Protection and

Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119

(2010), obligates Medicare Advantage insurers to report and

return any overpayment that they receive from CMS within

sixty days of identifying it, 42 U.S.C. § 1320a-7k(d)(1), (2).

The Act defines “overpayment” as “any funds that a person

receives or retains under [the Medicare or Medicaid

programs] to which the person, after applicable reconciliation,

is not entitled.” Id. § 1320a-7k(d)(4)(B). In section 1320a-

7k(d)(3), it establishes that failure to report and return a

known overpayment within sixty days of discovering it

violates the False Claims Act, 31 U.S.C. § 3729 et seq., which

carries the potential for treble damages and other serious

penalties, see id. § 3729(a)(1).

In 2014, CMS promulgated the Overpayment Rule to

implement the statutory requirement to report and return

overpayments. The Rule similarly defines “overpayment” as

“any funds that [a Medicare Advantage insurer] has received

or retained under [the Medicare Advantage program] to which

the [Medicare Advantage insurer], after applicable

reconciliation, is not entitled.” Overpayment Rule, 79 Fed.

Reg. at 29,958 (codified at 42 C.F.R. § 422.326(a)), J.A. 85.

In the Rule’s preamble, CMS explained that, among other

things, any “diagnosis that has been submitted [by a Medicare

Advantage insurer] for payment but is found to be invalid

because it does not have supporting medical record

documentation would result in an overpayment.” Id. at

29,921, J.A. 64.

One commenter on the proposed Overpayment Rule, a

Medicare Advantage insurer not a party to this case, had

objected that it ran afoul of the Medicare statute’s actuarial-

equivalence requirement because it did not also require an

adjuster akin to the FFS Adjuster that CMS had proposed two

years earlier in the context of contract-level RADV audits.

See id.; see also J.A. 50-51 (comment from Humana on

proposed rule). In the final Rule, which does not provide for

such an adjuster, CMS stated that it “disagree[d] with the

commenter” because the “RADV methodology does not

change [CMS’s] existing contractual requirement that

[Medicare Advantage insurers] must certify (based on best

knowledge, information, and belief) the accuracy,

completeness, and truthfulness of the risk adjustment data

they submit to CMS.” Overpayment Rule, 79 Fed. Reg. at

29,921, J.A. 64. Nor, said CMS, did the statutory

overpayment-refund obligation, as implemented by the Rule,

“change the long-standing risk adjustment data requirement

that a diagnosis submitted to CMS by [a Medicare Advantage

insurer] for payment purposes must be supported by medical

record documentation.” Id. at 29,921-22, J.A. 64-65.

B. Factual and procedural history

UnitedHealth filed this challenge to the Overpayment

Rule in January 2016. Following the district court’s denial of

CMS’s motion to dismiss in March 2017, the parties cross-

moved for summary judgment. On September 7, 2018, the

court granted UnitedHealth’s motion in full and vacated the

Overpayment Rule. See UnitedHealthcare Ins. Co. v. Azar,

330 F. Supp. 3d 173, 192 (D.D.C. 2018).

The district court held that the Overpayment Rule

violated the Medicare statute’s requirement of “actuarial

equivalence.” Id. at 187. It concluded that the Rule would

“inevitabl[y]” lead to the loss of actuarial equivalence, id. at

185, because “payments for care under traditional Medicare

and Medicare Advantage are both set annually based on costs

from unaudited traditional Medicare records, but the 2014

Overpayment Rule systematically devalues payments to

Medicare Advantage insurers by measuring ‘overpayments’

based on audited patient records,” id. at 184. The court

emphasized that CMS had actually “recognized and

mitigated” “the same actuarial problem” when, in 2012, it

provisionally committed to using an FFS Adjuster for

contract-level RADV audits to account for the fact that

extrapolating an error rate across a Medicare Advantage

insurer’s entire contract effectively corrected for any

unsupported codes in the insurer’s data. Id. Relying on much

the same reasoning, the court held that the Rule also violated

the Medicare statute’s “same methodology” requirement. Id.

at 187. The court then deemed the Rule arbitrary and

capricious in violation of the APA as an unexplained

departure from CMS’s prior policy, namely, its stated intent

to use an FFS Adjuster in the context of contract-level RADV

audits. Id. at 187-90. The court noted only in passing that

CMS had not yet determined an appropriate amount of any

FFS Adjuster for contract-level RADV audits. See id. at 188.

The district court also rejected the Overpayment Rule’s

imposition of a negligence standard of liability for failure to

identify and report an overpayment. The Rule as promulgated

provided that a Medicare Advantage insurer “has identified an

overpayment when the [insurer] has determined, or should

have determined through the exercise of reasonable diligence,

that the [insurer] has received an overpayment.” 42 C.F.R.

§ 422.326(c) (emphasis added). But section 1320a-7k(d)(3)

of the Medicare statute provides that an overpayment that is

not timely reported and returned “is an obligation (as defined

in section 3729(b)(3) of title 31),” i.e., the False Claims Act,

under which liability requires proof of “knowingly”

submitting false claims for payment to the government, 31

U.S.C. § 3729(a). The False Claims Act defines “knowingly”

as having “actual knowledge” or acting “in deliberate

ignorance” or “reckless disregard of the truth or falsity of the

information.” Id. § 3729(b)(1)(A). The district court thus

held the Rule’s negligence-based liability inconsistent with

the False Claims Act’s “knowingly” standard.

UnitedHealthcare, 330 F. Supp. 3d at 190-91. The court held

that the final Rule’s negligence-based definition of

“identified”—which the proposed rule had defined to track

the False Claims Act’s fault standard before CMS adopted the

negligence standard in the final version—also violated the

APA because it was not a logical outgrowth of the proposed

rule. Id. at 191-92. CMS’s appeal does not challenge either

of those two holdings regarding the Rule’s negligence

standard; it contests only the district court’s rulings on

actuarial equivalence, same methodology, and the question

whether the Rule was arbitrary and capricious as an

unexplained departure from the FFS Adjuster CMS had

proposed to adopt in the context of RADV audits. See Gov’t

Br. 20-22.

In November 2018, CMS moved for partial

reconsideration, which the court denied in January 2020.

CMS based that motion on the results of the October 2018

study of the error rate in traditional Medicare, conducted as

groundwork for the anticipated FFS Adjuster for contract-

level RADV audits. As noted above, the results of that study

were made public several weeks after the district court’s

summary judgment ruling in this case. The study revealed

that “errors in [traditional Medicare] claims data do not have

any systematic effect on the risk scores calculated by the

CMS-HCC risk adjustment model,” undermining the case for

an adjuster. CMS Study at 5, J.A. 731; see also

UnitedHealthcare Ins. Co. v. Azar, No. 16-cv-157, 2020 WL

417867, at *1, *3 (D.D.C. Jan. 27, 2020), J.A. 801, 805. In

denying the motion, the district court stated that it “need not

linger on the details of the[] arguments” regarding the validity

of the study and CMS’s preliminary conclusion not to apply

any FFS Adjuster to contract-level RADV audits.

UnitedHealthcare, 2020 WL 417867, at *5, J.A. 811. The

court deemed it “sufficient to say that [UnitedHealth’s]

arguments [opposing the study] are fully explained and the

government does not adequately respond.” Id.

CMS timely appealed on November 6, 2018, and we

removed the case from abeyance in February 2020 following

the district court’s denial of reconsideration.

Finally, it bears noting that the issue of actuarial

equivalence has come up in other litigation between the

parties. The federal government and qui tam plaintiffs have

pursued several False Claims Act cases against Medicare

Advantage insurers in the last several years, charging failures

to report and return overpayments that the insurers knew were

based on unsupported diagnoses. At least some such cases

are still pending. See, e.g., United States ex rel. Poehling v.

UnitedHealth Grp., Inc., No. 16-cv-8697 (C.D. Cal.); United

States ex rel. Osinek v. Kaiser Permanente, No. 13-cv-3891

(N.D. Cal.). Medicare Advantage insurers, including

UnitedHealth, have raised actuarial equivalence as a defense

to False Claims Act liability. See Appellees Br. 55. At least

one court has rejected that defense, see United States ex rel.

Ormsby v. Sutter Health, 444 F. Supp. 3d 1010, 1067-71

(N.D. Cal. 2020), while another denied the government’s

request for an early partial summary judgment on that basis,

see United States ex rel. Poehling v. UnitedHealth Grp., Inc.,

No. 16-cv-8697, 2019 WL 2353125, at *1, *5-8 (C.D. Cal.

Mar. 28, 2019), but has not finally resolved the issue.

DISCUSSION

We review a district court’s grant of summary judgment

de novo. See, e.g., Clarian Health W., LLC v. Hargan, 878

F.3d 346, 352 (D.C. Cir. 2017). Under the APA, we must

“hold unlawful and set aside agency action” that is “arbitrary,

capricious, an abuse of discretion, or otherwise not in

accordance with law” or “in excess of statutory jurisdiction,

authority, or limitations, or short of statutory right.” 5 U.S.C.

§ 706(2). The party challenging agency action bears the

burden of proof. See, e.g., Abington Crest Nursing & Rehab.

Ctr. v. Sebelius, 575 F.3d 717, 722 (D.C. Cir. 2009) (citing

City of Olmstead Falls v. FAA, 292 F.3d 261, 271 (D.C. Cir.

2002)).

A. The Overpayment Rule does not violate the

Medicare statute’s requirement of “actuarial

equivalence”

UnitedHealth’s central challenge to the Overpayment

Rule is that it violates the Medicare statute’s command to

CMS to adjust payment amounts to a Medicare Advantage

insurer based on risk factors “so as to ensure actuarial

equivalence” between that insurer’s beneficiary population

and the traditional Medicare beneficiaries whose healthcare

cost data CMS uses to calculate capitated, monthly payments

to the insurer. 42 U.S.C. § 1395w-23(a)(1)(C)(i).

UnitedHealth argues that the Rule “results in different

payments for identical beneficiaries because it relies on both

supported and unsupported codes to calculate risk in

[traditional Medicare], but only supported codes in the

[Medicare Advantage] program,” which “necessarily means

that [Medicare Advantage] plans are not paid the same as

CMS for identical beneficiaries”—and in fact are “inevitably

underpa[id].” Appellees Br. 22-23; see also id. at 26-27. In

other words, UnitedHealth objects to CMS’s reliance on

minimally audited traditional Medicare data in the risk-

adjustment model that CMS uses to calibrate the monthly

payment rates for Medicare Advantage insurers, while CMS

at the same time obligates insurers to refund each individual

payment that they know is not supported by a beneficiary’s

medical records. Id. at 26. The Overpayment Rule,

UnitedHealth seems to say, disrupts actuarial equivalence

between Medicare Advantage and traditional Medicare

insofar as data from traditional Medicare that is used to model

the expected cost of a given diagnosis is subject to laxer

documentation standards than is a diagnosis a Medicare

Advantage insurer reports in support of payment.

UnitedHealth claims, and the district court agreed, that

before CMS may lawfully apply the Overpayment Rule, it

must implement one of two measures to remedy the claimed

imbalance. First, CMS could devise and apply an adjuster

akin to the FFS Adjuster it had intended to use (but since has

preliminarily decided is unwarranted) in the context of

contract-level RADV audits of Medicare Advantage insurers’

risk-adjustment data. In that scenario, Medicare Advantage

insurers would be liable for overpayments only to the extent

that their payment error rate exceeded that of traditional

Medicare. Alternatively, CMS could comprehensively audit

traditional Medicare data before using it in the risk-

adjustment model that sets Medicare Advantage insurers’

monthly payments. Only then would UnitedHealth be

prepared to accept that the traditional Medicare data used to

arrive at relative factors did not contain the unsupported codes

that, it asserts, should bar CMS from recouping overpayments

pursuant to the Rule for codes that a Medicare Advantage

insurer reported to CMS but later discovered were

unsupported by beneficiaries’ medical records.

There are two main problems with UnitedHealth’s

argument. First, nothing in the Medicare statute’s text,

structure, or logic makes the actuarial-equivalence

requirement in section 1395w-23(a)(1)(C)(i) applicable to the

overpayment-refund obligation in section 1320a-7k(d) or to

the Overpayment Rule promulgated under that section.

Second, even if the actuarial-equivalence requirement did

indirectly relate to Medicare Advantage insurers’

overpayment-refund obligation, we could not here invalidate

the Overpayment Rule as violating actuarial equivalence.

UnitedHealth notably does not challenge the risk-adjustment

model itself or the resultant values CMS assigned to any

relative factor. Nor did it provide evidence that the obligation

to refund overpayments, as defined by the Medicare statute

and the Rule, in fact has led or will lead to systematic

underpayment of Medicare Advantage insurers relative to

traditional Medicare.

We have not previously decided any case involving

“actuarial equivalence” as referenced in section 1395w-

23(a)(1)(C)(i) for the Medicare Advantage program. In the

context of the Employee Retirement Income Security Act

(ERISA), we have said that “[t]wo modes of payment are

actuarially equivalent when their present values are equal

under a given set of actuarial assumptions.” Stephens v. U.S.

Airways Grp., Inc., 644 F.3d 437, 440 (D.C. Cir. 2011).

UnitedHealth and CMS agree that “actuarial equivalence” in

this provision of the Medicare statute means that CMS aims to

pay the same amount to Medicare Advantage insurers for

their beneficiaries’ care as CMS would spend on those same

beneficiaries if they were instead enrolled in traditional

Medicare. See Gov’t Br. 1; Appellees Br. 26; see also

Defendants’ Memorandum in Support of Their Cross-Motion

for Summary Judgment and in Opposition to Plaintiffs’

Motion for Summary Judgment at 28, UnitedHealthcare Ins.

Co. v. Azar, 330 F. Supp. 3d 173 (D.D.C. 2018) (No. 16-cv-

157), J.A. 688.

The parties disagree about whether the Overpayment

Rule even implicates the actuarial-equivalence requirement.

UnitedHealth assumes the Overpayment Rule creates a

sweeping obligation that effectively requires Medicare

Advantage insurers to self-audit all their data. It thus asserts

that, because of actuarial equivalence, before CMS may

police overpayments in the manner of the Overpayment Rule,

CMS must either audit traditional Medicare data before it

goes into the risk-adjustment model or, alternatively, adopt a

systemic corrective similar to the FFS Adjuster CMS

contemplated in the context of proposed contract-level RADV

audits. In the context of the RADV audit expansion, the

insurers’ objection was that applying a sampled payment error

rate across an entire contract would effectively audit all of an

insurer’s data while leaving unaudited the traditional

Medicare data used to set monthly payments in the first place,

thus requiring the application of an adjuster that would also

effectively audit all of the data on the traditional Medicare

side. Here, UnitedHealth asserts much the same: that the

Overpayment Rule essentially requires insurers to audit all of

the data they submit to CMS (especially given the prospect of

liability under the False Claims Act), leaving that data set

with no unsupported codes, while traditional Medicare data

remains unaudited, leaving that data set with a significant

number of unsupported codes. And, UnitedHealth says, the

presence of unsupported codes in traditional Medicare data

depresses the value of relative factors, so removing

unsupported codes from a Medicare Advantage insurer’s data

but not traditional Medicare’s will cause CMS to underpay

insurers.

UnitedHealth’s premise is unsupported. Nothing in the

Overpayment Rule obligates insurers to audit their reported

data. As the district court held, see UnitedHealthcare, 330 F.

Supp. 3d at 190-91, and CMS does not here dispute, see Gov’t

Br. 22, 30, the Rule only requires insurers to refund amounts

they know were overpayments, i.e., payments they are aware

lack support in a beneficiary’s medical records. That limited

scope does not impose a self-auditing mandate.

No part of the Medicare statute or the Overpayment Rule

supports UnitedHealth’s challenge. The statute’s actuarial-

equivalence requirement does not apply to the separate

statutory obligation on insurers to refund overpayments they

erroneously elicit from CMS; nor, by the same token, does

actuarial equivalence apply to the Overpayment Rule that

implements that statutory obligation and, in relevant part,

essentially parrots it. Compare 42 U.S.C. § 1320a-

7k(d)(4)(B) (defining “overpayment” as “any funds that a

person receives or retains under [the Medicare or Medicaid

programs] to which the person, after applicable reconciliation,

is not entitled”), with 42 C.F.R. § 422.326(a) (defining

“overpayment” as “any funds that [a Medicare Advantage

insurer] has received or retained under [the Medicare

Advantage program] to which the [Medicare Advantage

insurer], after applicable reconciliation, is not entitled”).

Nothing in the text of either the actuarial-equivalence

requirement in section 1395w-23(a)(1)(C)(i) or the

overpayment-refund obligation in section 1320a-7k(d) applies

the former to the latter. There is no cross-reference or other

language suggestive of overlap, nor does UnitedHealth so

contend. Indeed, even the district court acknowledged that

the overpayment-refund obligation does not “state how

‘overpayments’ and ‘actuarial equivalence’ in payments are

related.” UnitedHealthcare, 330 F. Supp. 3d at 181.

More specifically, nothing in either provision renders

actuarial equivalence a defense against the obligation to

refund any individual, known overpayment. Notably,

Congress through the Affordable Care Act strengthened

Medicare Advantage insurers’ data-reporting obligations by

requiring insurers to report and return overpayments within

sixty days of their discovery, and it made specific provision

for False Claims Act liability for those that do not. In so

doing, Congress made no reference to the Medicare statute’s

longstanding actuarial-equivalence requirement, let alone any

suggestion that it could be interposed as a defense. See 42

U.S.C. § 1320a-7k(d).

If anything, the text of section 1395w-23(a)(1)(C)(i)

limits the scope of the actuarial-equivalence requirement. It

states that CMS “shall adjust the payment amount under

subparagraph (A)(i) and the amount specified under

subparagraph (B)(i), (B)(ii), and (B)(iii)” for demographic

and health characteristics “to ensure actuarial equivalence.”

Those cross-referenced subparagraphs identify the manner in

which CMS “shall make monthly payments under this section

in advance to each [Medicare Advantage] organization.” Id.

§ 1395w-23(a)(1)(A). Section 1395w-23(a)(1)(C)(i)’s

reference to risk-adjusting the amount paid to Medicare

Advantage insurers “under” certain cross-referenced

subparagraphs, and those subparagraphs’ focus on the

predetermined monthly payments made to insurers “under this

section,” indicate that the actuarial-equivalence requirement is

not broadly applicable, but instead limited to the specified

context of CMS’s calculation and disbursement of monthly

payments in the first instance. Cf. Davis v. Pension Benefit

Guar. Corp., 734 F.3d 1161, 1170 (D.C. Cir. 2013)

(interpreting ERISA’s actuarial-equivalence requirement as

limited by statutory text and structure).

Stephens v. U.S. Airways Group, Inc., cited by the district

court in support of its holding, see UnitedHealthcare, 330 F.

Supp. 3d at 185-86, actually cuts the other way. There, we

held that an ERISA actuarial-equivalence requirement did not

obligate the airline to pay pensioners interest on requested

lump-sum payments made well after annuity payments would

have begun had the same benefit been disbursed periodically.

Stephens, 644 F.3d at 440. When we held that interest was

required under IRS regulations regarding unreasonable delay

of such payments, id.; see also id. at 442, we were also clear

that the lump-sum payments did not violate actuarial

equivalence where the airline “accurately calculated [the]

lump sums to be the ‘actuarial equivalent’ of the annuity

option as of the annuity start date,” id. at 440. Because the

actuarial equivalence of the annuity and lump-sum payments

had been calculated based on a common initial payment date,

and the statute was silent on whether interest was owed when

an otherwise actuarially equivalent pension was paid later, we

declined to grant the interest claim on that basis. Id.

Here, the Medicare statute is similarly silent, as it speaks

not at all to whether the actuarial-equivalence requirement in

section 1395w-23(a)(1)(C)(i) bears on section 1320a-7k(d)’s

requirement to refund overpayments. That is, the statute

never says that the later refund of individual, known

overpayments implicates the earlier-in-time requirement that

the lump-sum monthly payments to Medicare Advantage

insurers be set as if an insurer’s beneficiary pool were

actuarially equivalent to traditional Medicare’s population. In

the face of such silence, actuarial equivalence is satisfied

consistently with Stephens so long as CMS reasonably

concluded when it set its monthly payments to UnitedHealth

that the traditional Medicare data it used was sufficiently

accurate and free of systemic biases that modeling based on

that data would generate relative-factor values enabling CMS

to “adjust the payment amount” to UnitedHealth “so as to

ensure actuarial equivalence.” 42 U.S.C. § 1395w-

23(a)(1)(C)(i). As discussed in the next section, there is no

evidence of any such systemic skew in traditional Medicare

data, and, indeed, UnitedHealth never challenged the values

CMS assigned to the relative factors. CMS permissibly reads

the Medicare statute to authorize it to recover overpayments

for diagnosis codes UnitedHealth submitted but knew or

learned were unsupported—and to do so without first either

remaking its underlying actuarial-equivalence calculation to

prove that traditional Medicare data is completely free of

unsupported diagnoses, or re-defending its calculation as

already accounting for unsupported diagnoses.

As CMS points out, the actuarial-equivalence

requirement is not an “entitle[ment] . . . to a precise payment

amount” for a Medicare Advantage insurer, but only “an

instruction to the Secretary regarding the design of the risk

adjustment model as a whole . . . describ[ing] the type of

‘payment amount[s]’ that the risk adjustment model should

produce”; “[i]t does not directly govern how CMS evaluates

the validity of diagnoses or defines ‘overpayment.’” Reply

Br. 5-6 (third alteration in original); see Gov’t Br. 42-43. To

that end, the Medicare statute grants the agency considerable

discretion in determining how to structure the risk-adjustment

model to achieve actuarial equivalence. See 42 U.S.C.

§ 1395w-23(a)(1)(C)(i).

The actuarial-equivalence requirement and the

overpayment-refund obligation apply to different actors,

target distinct issues arising at different times, and work at

different levels of generality. The actuarial-equivalence

provision directs CMS to develop a system of relative factors

to use in adjusting the amount of the monthly payments to

each Medicare Advantage insurer. See id. It calls on CMS to

use its expert judgment to identify cost-predictive risk factors

in the Medicare population and to analyze the data

accumulated in traditional Medicare to determine average

costs associated with those factors.

The point of that exercise is to enable CMS to pay only

as much for coverage of Medicare Advantage beneficiaries as

it would if they were instead enrolled in traditional Medicare,

notwithstanding differences between the actual populations—

for example, that Medicare Advantage populations have

tended to be healthier than traditional Medicare’s population.

See Reply Br. 20-21 (citing Pope et al., Risk Adjustment of

Medicare Capitation Payments Using the CMS-HCC Model,

at 119, J.A. 487). Thus, the actuarial-equivalence requirement

is focused on accounting for the distinct profiles of each

insurer’s beneficiary population, listing “age, disability status,

gender, institutional status, and . . . health status” as

potentially relevant considerations in the risk-adjustment

model. 42 U.S.C. § 1395w-23(a)(1)(C)(i). Significantly,

section 1395w-23(a)(1)(C)(i)’s use of the qualifier “actuarial”

necessarily implies an assessment made at the group or

population level, not the individual level, so as to support

credible statistical inferences. Cf. Pope et al., Evaluation of

the CMS-HCC Risk Adjustment Model: Final Report 5, J.A.

522 (explaining that “risk assessment is designed to

accurately explain the variation at the group level, not at the

individual level, because risk adjustment is applied to large

groups,” and that “the Actuarial Standard Board’s Actuarial

Standard of Practice for risk classification” requires that “risk

classes are large enough to allow credible statistical

inferences”). By contrast, the overpayment-refund obligation

in both the Medicare statute and the Overpayment Rule

corrects particular mistaken payments to Medicare Advantage

insurers that exceed what the relevant medical records

support.

Finally, applying actuarial equivalence to the Medicare

statute’s separate obligation to refund particular, known

overpayments would seriously undermine that obligation,

with the potential for absurd consequences. As UnitedHealth

acknowledged at oral argument, under its view of actuarial

equivalence as a defense against its obligation to reimburse

CMS for known overpayments, a Medicare Advantage insurer

could be entitled to retain payments that it knew were

unsupported by medical records so long as CMS had not

established that the insurer’s overall payment error rate was

higher than traditional Medicare’s payment error rate. See

Oral Arg. Tr. 50:12-18. Indeed, under that line of thinking, a

Medicare Advantage insurer could knowingly submit

unsupported diagnosis codes and retain payment for them

unless and until CMS established—based on fully audited

data of both traditional Medicare and the Medicare Advantage

insurer at issue—that the particular overpayment resulted in a

net gain to the insurer relative to traditional Medicare. There

is no basis on which we can conclude that Congress intended

the distinct actuarial-equivalence requirement to so thwart the

overpayment-refund obligation—an obligation that, again,

Congress strengthened through the Affordable Care Act

without any reference to the accuracy or actuarial equivalence

of the prospective monthly payments that CMS calculates and

disburses to Medicare Advantage insurers. Congress gave no

sign that it was limiting the obligation in the way

UnitedHealth now suggests.

UnitedHealth asks us to rewrite the statutory

overpayment-refund obligation, which was the basis for the

Overpayment Rule, by narrowing the capacious “any funds”

to which a Medicare Advantage insurer “is not entitled,” 42

U.S.C. § 1320a-7k(d)(4)(B), with an actuarial-equivalence

exception. But in the absence of any textual or structural

connection between the two provisions, we decline to hold

that the actuarial-equivalence requirement in section 1395w-

23(a)(1)(C)(i) applies to the overpayment-refund obligation in

section 1320a-7k(d) or the Overpayment Rule CMS

promulgated to comply with that provision.

Even if the Medicare statute could theoretically support

UnitedHealth’s reading, we lack the necessary grounds here

to invalidate the Overpayment Rule as a violation of actuarial

equivalence. Recall that UnitedHealth’s claim is that CMS

cannot demand that UnitedHealth refund overpayments unless

CMS shows it meets what UnitedHealth posits as a

symmetrical auditing or error-correction obligation regarding

traditional Medicare. But Congress has spelled out distinct

obligations for traditional Medicare and Medicare Advantage,

such as the Coding Intensity Adjuster that applies to the latter

program but not the former, see id. § 1395w-

23(a)(1)(C)(ii)(III); and CMS has long employed different

audit mechanisms for the claims submitted by healthcare

providers for traditional Medicare beneficiaries as compared

to the data submitted by Medicare Advantage insurers to

enable CMS to calculate accurate risk scores for Medicare

Advantage beneficiaries, see Gov’t Br. 16-19, 35-38.

Congress’s and CMS’s use of measures tailored to the

differing structures of and incentives in the two programs

makes sense; indeed, it could be irrational not to use distinct

tools as needed to respond to different problems.

UnitedHealth does not challenge the Coding Intensity

Adjuster imposed by Congress. And UnitedHealth has never

taken the opportunity that arises annually to challenge the

accuracy of the risk-adjustment model or pricing when CMS

announces the relative factors and base payment rates that it

will use for the upcoming year. See Oral Arg. Tr. 12:12-

13:16; see also Ormsby, 444 F. Supp. 3d at 1068 n.442. We

accordingly accept the unchallenged validity of the overall

design of the model, the risk factors considered by CMS

pursuant to its discretion under section 1395w-23(a)(1)(C)(i),

and the accuracy of the resultant values of relative factors.

UnitedHealth cannot now use actuarial equivalence to litigate

belated objections to the risk-adjustment model or the level of

its monthly payments through the back door of the

Overpayment Rule.

UnitedHealth has failed to provide any logical or

empirical basis to question the accuracy of traditional

Medicare data. UnitedHealth asserts that the obligation to

refund overpayments, at least as defined by the Overpayment

Rule, leads to systematic underpayment of Medicare

Advantage insurers relative to traditional Medicare. But it is

by no means “inevitable” that Medicare Advantage insurers

will be underpaid without the correctives that UnitedHealth

would require. UnitedHealthcare, 330 F. Supp. 3d at 185,

187. Congress and CMS have long recognized that the uses

of and incentives bearing on data in traditional Medicare and

Medicare Advantage are very different, and accordingly have

designed a range of distinct obligations and error-correction

mechanisms for the two programs. As is by now familiar,

CMS pays healthcare providers for Medicare Part B

beneficiaries on a fee-for-service basis; thus, whereas

providers may have incentives to overtreat those beneficiaries,

they lack incentives to overreport diagnosis codes. By

contrast, Medicare Advantage insurers, which CMS pays

based on their beneficiaries’ demographic and health

characteristics, including diagnoses, have financial incentives

to code intensely and overreport diagnoses but not necessarily

to overtreat beneficiaries. See Advance Notice of

Methodological Changes for CY 2004 Medicare+Choice

Payment Rates, at 5, J.A. 115; U.S. Gov’t Accountability

Off., Medicare Advantage: CMS Should Improve the

Accuracy of Risk Score Adjustments for Diagnostic Coding

Practices 2, J.A. 546.

UnitedHealth complains of “a substantial number” of

unsupported diagnosis codes in the minimally audited

traditional Medicare data set. Appellees Br. 26. But

UnitedHealth identifies no reason why the traditional

Medicare data that goes into the risk-adjustment model would

suffer systematically from unsupported codes like those the

Overpayment Rule targets, i.e., codes lacking substantiation

in medical records. If anything, the fact that providers for

traditional Medicare beneficiaries are generally paid based on

services, not diagnoses, would seem to tend toward

underreporting, not overreporting, of diagnoses within

traditional Medicare. The underlying premise of

UnitedHealth’s overall position is that traditional Medicare

data includes a significant rate of unsupported diagnosis codes

that ultimately depresses the payments to Medicare

Advantage insurers. But the different ways the programs’

reimbursement schemes work in practice make that premise

implausible.

Nor has UnitedHealth established another premise of its

position—that the unsupported codes it posits in traditional

Medicare would both be materially analogous to those the

Overpayment Rule targets, and would cause UnitedHealth to

be underpaid. To start, it is not even clear which kind of

payment error in traditional Medicare, relative to Medicare

Advantage, UnitedHealth believes is overlooked to its

detriment. UnitedHealth identifies the problem in traditional

Medicare as “a substantial number” of unsupported codes, id.,

though, as discussed more below, it does not specify what, if

any, payment implications it sees as necessarily attending

them. To the extent that unsupported codes in traditional

Medicare would be associated with erroneous payments that

CMS need not have made to healthcare providers—i.e.,

overpayments analogous to any CMS makes to Medicare

Advantage insurers and targets with the Overpayment Rule—

that kind of error would, if anything, tend to raise, not lower,

overall payments to Medicare Advantage insurers. That is,

because CMS’s expenditures on traditional Medicare

contribute to setting the base rate later used to make payments

to Medicare Advantage insurers, the more money CMS

spends on traditional Medicare, the higher the baseline for its

expenditures on Medicare Advantage.

UnitedHealth nonetheless defends its position and the

district court’s ruling as founded “on straightforward math:

Including unsupported codes when allocating costs on the

traditional Medicare side, then excluding those same codes

when determining payment amounts on the [Medicare

Advantage] side, will underpay plans.” Id. at 27.

UnitedHealth’s math does not add up. To illustrate its

assertion of inevitable underpayment, UnitedHealth riffs on

CMS’s example involving a 72-year-old woman living

independently (relative factor 0.348), with diabetes without

complications (relative factor 0.118), and multiple sclerosis

(relative factor 0.556), who would have a total risk score of

1.022. See Gov’t Br. 7. But for UnitedHealth that woman is

a twin: Her sister (Twin A) is a traditional Medicare

beneficiary, and she (Twin B) is “identical in all respects” but

is a Medicare Advantage beneficiary. Appellees Br. 32.

UnitedHealth asks us to imagine that the diabetes code for

both twins (who, again, are identical) is “unsupported.” Id. It

says that, under the Overpayment Rule, the woman’s

Medicare Advantage insurer “would need to delete her

unsupported diabetes code after identifying it, and the

resulting risk score for Twin B would be 0.904.” Id. So, if

her sister, Twin A, “cost CMS $10,000 to insure . . . the

[Medicare Advantage] plan would receive only $8,845 to

insure its identical beneficiary (0.904/1.022 x $10,000).” Id.

at 32-33.

UnitedHealth’s twin example ignores that unsupported

codes are likely to occur for different reasons and with

differing effects in the two programs: Unlike an unsupported

diabetes code associated with Twin B in Medicare Advantage,

which leads to an unwarranted increase in payment to the

insurer, the mere existence of an unsupported diabetes code

for Twin A in traditional Medicare does not mean CMS spent

more money on that beneficiary. That is, CMS’s expenditure

for Twin A (at least in fee-for-service Part B) is not likely to

have been higher if she were miscoded as diabetic than it

would be without that error. CMS’s expenditure on the twin

in traditional Medicare would increase only if CMS paid for

treatment corresponding to that unsupported code. But if

Twin A’s unsupported diabetes code is only an administrative

error that does not correspond to treatment actually provided

and paid for, UnitedHealth’s hypothetical uses the wrong

starting point, and so the wrong figures, for Twin A’s side of

the comparison. Her costs in traditional Medicare from the

outset (and even if her unsupported diabetes code is never

caught) would be at the same, lowered level as Twin B’s in

Medicare Advantage once that diabetes code was removed—

in both cases, the payment level appropriate for a non-

diabetic.

Even assuming Twin A’s unsupported diabetes code were

associated with erroneous payment by CMS, one would need

to know more about the nature and scale of such errors to

determine whether they could have affected the results of the

regression analysis used to calculate relative factors, and in

what direction. For example, if UnitedHealth is assuming that

Twin A’s unsupported diabetes code triggered payment for

treatment that had no medical purpose, UnitedHealth still has

not made its case of inevitable underpayment. Specifically, if

an unsupported code in traditional Medicare pairs with

diabetes treatment for which CMS paid, UnitedHealth has not

explained how, in coding it as just that—a cost of diabetes

treatment, however unnecessary—CMS would inevitably

depress the value of the relative factor for diabetes. As

UnitedHealth sees it, every unsupported diabetes code in

traditional Medicare lowers the value of the relative factor for

diabetes, as CMS’s expenditure on diabetes is divided among

more and more beneficiaries. But UnitedHealth does not

account for the possibility of an unsupported code associated

with payment by CMS, which would enlarge both the total

costs and the beneficiary pool in traditional Medicare and

thus, if anything, tend to keep constant the value of the

relative factor at issue.

Alternatively, if UnitedHealth’s concern is with a

diabetes code that is unsupported because treatment was

delivered, medically necessary, and paid for, but just

administratively associated with the wrong code—diabetes

rather than celiac disease, for example—it also has not shown

inevitable underpayment. In such a case, a data point that

should have gone into the regression analysis supporting the

relative factor for celiac disease would have instead been part

of the data crunched to arrive at the diabetes relative factor.

But, without any basis to conclude that any such errors occur

at scale or in any particular pattern, the misattribution of some

costs in the data cannot be assumed to distort CMS’s analysis.

The implications of any unsupported diabetes code in

traditional Medicare are quite different from those of the same

unsupported code in Medicare Advantage. The former will

not lead to Medicare Advantage insurers’ inevitable

underpayment because, as already noted, any erroneous code

in traditional Medicare is aggregated with millions of others

in the regressions called for under the risk-adjustment model.

Errors that are isolated and random, not systemic, cannot

alone be assumed to affect the value of a relative factor that

bears on how much CMS will pay Medicare Advantage

insurers for beneficiaries with any particular condition. An

unsupported code submitted by a Medicare Advantage

insurer, in contrast, triggers overpayment in every case. That

is because individual codes in that program are used to

determine payments, not as data points in a complex and

rigorous statistical model.

In sum, UnitedHealth has given no reason to think that

miscoding in traditional Medicare necessarily leads to any

inflated or deflated relative factors and, if it did, which ones

are affected in which direction. We cannot assume based on

UnitedHealth’s reasoning alone that Medicare Advantage

insurers are inevitably underpaid under any of the

circumstances possible in its example.

What’s more, the empirical evidence that we do have—

CMS’s October 2018 study concerning an FFS Adjuster in the

context of contract-level RADV audits—suggests that

Medicare Advantage insurers are not underpaid relative to

traditional Medicare, contrary to UnitedHealth’s and the

district court’s belief that underpayment is inevitable.

Through that study, CMS “found that errors in [traditional

Medicare] claims data do not have any systematic effect on

the risk scores calculated by the CMS-HCC risk adjustment

model, and therefore do not have any systematic effect on the

payments made to [Medicare Advantage] organizations.”

CMS Study at 5, J.A. 731. In fact, CMS determined that the

impact of errors in traditional Medicare data “is less than one

percent on average and in favor of the [Medicare Advantage]

plans.” Id.

Together with its opposition to CMS’s motion for partial

reconsideration before the district court, UnitedHealth

submitted a declaration from an actuarial expert “reflect[ing]

[the expert’s] professional interpretation” of CMS’s study.

Declaration of Julia Lambert at 2, UnitedHealthcare Ins. Co.

v. Azar, 2020 WL 417867 (D.D.C. Jan. 27, 2020) (No. 16-cv-

157), J.A. 771. UnitedHealth’s expert criticized the study by

asserting that the underlying data in fact showed that, “if you

take [a Medicare Advantage insurer] with risk profiles

identical to those in the [traditional Medicare] data, the

[insurer] would be underpaid if the relative factors generated

using both supported and unsupported data [from traditional

Medicare] were applied only to supported codes in the

[insurer’s] data.” Id. at 19, J.A. 788. But neither CMS’s

study nor UnitedHealth’s expert’s declaration tells us what

happens when a Medicare Advantage insurer removes some,

but not all, unsupported codes from its data, as is the reality

here with the overpayment-refund obligation for only known

overpayments. Indeed, UnitedHealth’s expert’s declaration

unquestioningly presumes that, as a result of the Overpayment

Rule, a Medicare Advantage insurer’s data will consist of

only supported codes. See id. UnitedHealth has not shown,

though, that the overpayment-refund obligation, as defined by

the Overpayment Rule and limited to codes known to lack

support, in fact will result in Medicare Advantage insurers

receiving payment for only supported codes, or that there is a

point at which the removal of some, even if not all,

unsupported codes from an insurer’s data would violate

actuarial equivalence.

The burden of proof is UnitedHealth’s to show that the

Overpayment Rule is unlawful. See, e.g., Abington Crest, 575

F.3d at 722 (citing City of Olmstead Falls, 292 F.3d at 271).

In the absence of such proof—or even persuasive logic in

UnitedHealth’s favor—we could not here invalidate the

Overpayment Rule as violating actuarial equivalence even if

we held that such requirement bore on the overpayment-

refund obligation.

B. The Overpayment Rule does not violate the

Medicare statute’s requirement of “same

methodology”

UnitedHealth’s second claim—that the Overpayment

Rule violates the Medicare statute’s “same methodology”

requirement in section 1395w-23(b)(4)(D)—is likewise

without merit. As explained above, each county in the United

States has its own base payment rate, which provides the

starting point for the monthly, per-capita payment to a

Medicare Advantage insurer covering a beneficiary in that

area. Every year, Medicare Advantage insurers bid for

contracts after CMS announces the county-specific

benchmarks for the coming year. See 42 U.S.C. § 1395w-

23(b)(1)(B). The base rate for a given county is then

determined by the benchmark derived from traditional

Medicare’s per-capita expenditures in the county and the

winning bid submitted by a Medicare Advantage insurer. An

insurer covering a beneficiary with a risk score of 1.0 can

expect to receive the base rate for the beneficiary’s home

county, whereas beneficiaries with risk scores higher or lower

than 1.0 will draw prorated payments above or below the base

rate, respectively.

As UnitedHealth acknowledges, the annual computation

and publication requirement in section 1395w-23(b)(4) is

meant to facilitate Medicare Advantage insurers’ yearly

submission of viable, competitive bids for contracts with

CMS. See Appellees Br. 33-34. In a section titled “Annual

announcement of payment rates,” the Medicare statute

requires CMS to compute and publish annually the “average

risk factor” for traditional Medicare beneficiaries on a county-

by-county basis, “using the same methodology as is expected

to be applied in making payments under subsection (a).” 42

U.S.C. § 1395w-23(b)(4)(D). Subsection (a) is, at this point,

familiar: It contains the actuarial-equivalence requirement

and governs the design of the risk-adjustment model. See id.

§ 1395w-23(a)(1)(C)(i).

The “same methodology” requirement plays a specific

role in the computation and publication of data to aid the

bidding process. It does not impose a substantive limit on the

operation of the risk-adjustment model, which is governed by

a separate provision. Nor does it have any bearing on whether

a particular payment to a Medicare Advantage insurer

constitutes an “overpayment.” Rather, the requirement to

“us[e] the same methodology” clarifies that CMS, in

computing the traditional Medicare data it publishes, must use

the same risk-adjustment model that it already uses to set

monthly payments to Medicare Advantage insurers, not

devise a new model or method for that purpose. Thus, for the

same reasons that support our holding regarding

UnitedHealth’s actuarial-equivalence claim, we conclude that

the Overpayment Rule simply does not implicate the

Medicare statute’s separate “same methodology” requirement.

C. The Overpayment Rule is not an unexplained

departure from prior policy

UnitedHealth’s third and final claim on appeal is that

CMS’s response to a comment calling for the use of an

adjuster under the Overpayment Rule was arbitrary and

capricious in violation of the APA. That comment advocated

“appl[ication of] the principles adopted by CMS in the RADV

audit context” to argue that “the sole instance in which an

‘overpayment’ can be determined” is when CMS first has

shown that the overall payment error for a given Medicare

Advantage insurer is higher than that in traditional Medicare.

Overpayment Rule, 79 Fed. Reg. at 29,921, J.A. 64.

In 2012, CMS proposed to use an FFS Adjuster in the

context of contract-level RADV audits used to review

Medicare Advantage insurers’ risk-adjustment data. It did so

in response to objections by Medicare Advantage insurers and

the American Academy of Actuaries that failure to use an

adjuster would violate the Medicare statute’s requirement of

“actuarial equivalence.” Specifically, those commenters had

argued that the actuarial-equivalence requirement prohibited

CMS from using traditional Medicare data—which is subject

to minimal auditing—to make monthly payments to Medicare

Advantage insurers in the first instance, but then requiring an

insurer to return some portion of those payments once CMS

had effectively audited all the insurer’s data by applying an

extrapolated payment error rate to its entire contract with

CMS. See, e.g., Aetna Inc.’s Comments on Proposed

Payment Error Calculation Methodology for Part C

Organizations Selected for Contract-Level RADV Audits, at 4

& 18-22, J.A. 298 & 312-16; Humana Inc., Comment on

RADV Sampling and Error Calculation Methodology, at 2-5

& 12, J.A. 333-36 & 343. Notably, the Academy did not

object to the proposed Overpayment Rule based on actuarial

equivalence, and CMS has preliminarily decided not to use an

FFS Adjuster for contract-level RADV audits after all because

“errors in [traditional Medicare] claims data do not have any

systematic effect on the risk scores calculated by the CMS-

HCC risk adjustment model.” CMS Study at 5, J.A. 731.

Because, as discussed above, the Overpayment Rule does

not violate, or even implicate, actuarial equivalence, CMS had

no obligation to consider an FFS Adjuster or similar

correction in the overpayment-refund context. Contract-level

RADV audits, which would effectively eliminate—and

require repayment for—all unsupported codes in a Medicare

Advantage insurer’s data, are an error-correction mechanism

that is materially distinct from the Overpayment Rule

challenged here, which requires only that an insurer report

and return to CMS known errors in its beneficiaries’

diagnoses that it submitted as grounds for upward adjustment

of its monthly capitation payments. Thus, CMS was not

required to provide further explanation of its decision. See

Motor Vehicles Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co.,

463 U.S. 29, 43 (1983). CMS’s response to the comment

reiterated Medicare Advantage insurers’ longstanding

obligations, under other of CMS’s regulations not challenged

here, see, e.g., 42 C.F.R. § 422.504(l), to certify the accuracy

of the data that they report to CMS, see Overpayment Rule,

79 Fed. Reg. at 29,921-22, J.A. 64-65. Its response was

therefore reasonable. See id. 1

As mentioned above, CMS has since proposed not to use an FFS

Adjuster in the context of contract-level RADV audits. See CMS

Study at 5, J.A. 731. We express no opinion on whether the

actuarial-equivalence requirement in section 1395w-23(a)(1)(C)(i)

of the Medicare statute requires such an adjuster in that context.

For current purposes, it suffices that the contexts of contract-level

RADV audits and overpayment refunds are plainly distinguishable,

such that CMS did not need to further explain, when it issued the

Overpayment Rule in 2014, why it then intended to use an adjuster

in the former context but not the latter.

* * *

For the foregoing reasons, we hold that the Overpayment

Rule does not violate the Medicare statute’s “actuarial

equivalence” and “same methodology” requirements and is

not arbitrary and capricious as an unexplained departure from

prior policy. We accordingly reverse the judgment of the

district court vacating the Overpayment Rule and remand this

case with orders to enter judgment in favor of Appellants,

except with respect to the Overpayment Rule’s definition of

“identified.”

So ordered.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.