CMS Amplifies Medicare Advantage RADV Audits and Targets Medicaid Provider Taxes

The Centers for Medicare and Medicaid Services (CMS) announced a significant increase in Risk Adjustment Data Validation (RADV) audits within the Medicare Advantage (MA) program. These audits ensure that diagnoses submitted by MA plans to secure risk-adjusted payments are supported by medical records, mitigating improper payments. Historically, CMS has lagged in finalizing RADV audits, with the most recent comprehensive audit dating back to payment year 2007. The new initiative aims to finalize audits for payment years 2018-2024 by early 2026, substantially accelerating the audit timeline and increasing annual audit volumes from about 60 to over 550 contracts each year.

To support this expanded effort, CMS plans to enhance its medical coding workforce and deploy advanced data analytics and automated review technologies to validate diagnosis coding efficiently. This ramp-up aligns with federal priorities to reduce waste, fraud, and abuse in MA payments, especially amid estimates suggesting the government may overpay MA plans by billions annually. Various estimates of overpayment range substantially, from $17 billion to $1.2 trillion over ten years, highlighting concerns around inflated risk scores.

However, some of the increased payments to MA plans may reflect additional covered benefits such as dental, vision, and wellness programs rather than simply improper payments. Compared to traditional fee-for-service Medicare, MA plans often provide more comprehensive benefits, meaning higher costs do not always equate to payment errors. The expanded RADV audits will likely reshape MA program oversight, aiming to uphold program integrity while preserving beneficiary choice, as over half of Medicare beneficiaries are enrolled in MA plans.

Separately, CMS proposed a rule targeting state tax practices related to Medicaid providers. This proposal seeks to prevent states from imposing disparate taxes on health care providers serving Medicaid populations, specifically addressing tax waivers that allow states to inflate federal Medicaid matching funds artificially. The Congressional Budget Office (CBO) has recommended reducing or eliminating the "safe harbor" tax threshold, currently capped at 6 percent of a provider's net revenue. Provider taxes significantly impact Medicaid financing, accounting for approximately $84 billion in 2026.

Although new legislation has yet to alter the safe harbor threshold, efforts to freeze these tax caps demonstrate federal intent to curb disproportionate state tax practices that affect Medicaid spending. The CBO projects that lowering the safe harbor could save between $48 billion and $630 billion in federal Medicaid outlays over the next decade.

These regulatory changes reflect ongoing federal efforts to increase oversight and financial stewardship in both Medicare Advantage and Medicaid programs. For the insurance industry, these developments highlight the growing importance of compliance and accurate coding, as well as evolving fiscal policies affecting provider taxation and state-federal Medicaid relationships. These trends will impact payer strategies, audit preparations, and provider contracting approaches in the near term.