Risk adjustment audits are changing again, and leaders in charge of risk adjustment services should take note as the implications are massive.
In October 2025, a federal court struck down the Biden administration’s 2023 Risk Adjustment Data Validation (RADV) audit overhaul, unraveling a key regulation that would have significantly expanded Medicare Advantage (MA) plan audit recoveries. For payers, providers, and revenue cycle leaders managing risk adjustment operations, this decision adds a fresh layer of uncertainty – but also a potential reprieve.
At 3Gen Consulting, we’ve been closely following these developments as we continue refining our AI-driven risk adjustment workflows through RiskGen-i, our proprietary AI platform built to enhance risk adjustment coding accuracy, compliance, and audit readiness. These evolving changes have inspired our AI innovation to manage the uncertainty in risk adjustment and the back and forth in audit requirements from the federal government. We’ve put together these updates to help revenue cycle leaders make smarter decisions in their outsourcing decisions in risk adjustment services.
The 2023 Risk Adjustment Audit Overhaul Has Been Struck Down
A federal court recently dismantled a foundational Biden administration regulation that intensified Medicare Advantage (MA) audit protocols [1]. This decision represents a win for MA insurers, derailing a policy designed to reclaim billions in alleged overpayments.
Judge Reed O’Connor of Texas determined that the Department of Health and Human Services acted improperly, violating the Administrative Procedure Act. He states that the agency failed to furnish adequate notification to the industry and public regarding pivotal alterations within the rule. A central point of conflict was the elimination of the “fee-for-service adjuster” – a factor that historically calibrated overpayment sums by referencing discrepancies found in traditional Medicare data. Humana initiated legal proceedings against the RADV overhaul in late 2023, centering its case on this removal.
Insurers rely on adjusters for maintaining financial equilibrium between MA and traditional Medicare, arguing its absence could result in systematic underpayment. The government agency contended that shifting its rationale between the proposed and final rule versions was permissible and did not mandate further public commentary. Judge O’Connor rejected this position. He declared the lack of meaningful notice obstructed any substantive dialogue around the rule’s consequences. The resulting harm, the judge noted, intensifies because the rule applies retroactively to 2018. This forces companies to confront massive unanticipated financial liabilities, as they structured their business operations around the previous guidance for multiple years.
The ruling not only stops a meticulous, multi-year audit redesign but also complicates current governmental initiatives to intensify scrutiny of MA plans and their associated risk adjustment services.
Understanding the History of Risk Adjustment Services Regulation
Finalized in February 2023, the contested rule sought to reform Risk Adjustment Data Validation (RADV) audits [2]. The original 2023 final rule from the Centers for Medicare & Medicaid Services (CMS) established a new framework for conducting RADV audits. It empowered the agency to apply a fresh, more aggressive audit methodology to contracts stretching back to the 2018 payment year. The HHS Secretary championed the rule as a “commonsense” measure essential for guaranteeing the fiscal soundness of the entire Medicare program, asserting it would recapture funds improperly disbursed to MA plans.
The audit process itself involves CMS selecting a sample of an MA plan’s enrollees for a specific year and contrasting submitted diagnoses with actual patient medical documentation. The final rule’s most impactful provision authorized CMS to extrapolate an error rate discovered in that sample across the plan’s entire membership, dramatically amplifying potential financial recoveries.
An earlier 2018 proposal was even more aggressive, seeking to apply extrapolation back to 2011, but the finalized version settled on the 2018 start date. Agency projections indicated this approach would recoup approximately $479 million in overpayments linked solely to that initial year. Over a decade, from 2023 to 2032, CMS estimated recovering an additional $4.7 billion from insurers. This rigorous approach was intended to redefine oversight and encourage increased accuracy in the submission of risk adjustment data, fundamentally altering the landscape for risk adjustment services.
The Industry Reacts
Matt Eyles, president and CEO of AHIP, spoke with Becker’s ahead of the original ruling, questioning its legality [3].
“It relies on bad data, some which is almost 20 years old at this point. We think it’s going to harm seniors and reduce health equity. We know how critically important the focus on health equity is, especially when you look at the higher levels of enrollment by minority populations and low-income Americans in Medicare Advantage plans.”
Legal entities have expressed concern over uncertainty generated by the recent change. Crowell & Moring, LLP states [4],
“This ruling has significant implications for the Medicare Advantage industry, including both initiated, and soon-to-be-initiated, RADV audits. Because the RADV Final Rule was vacated, RADV audits for PY 2018 and beyond (i.e., those RADV audits that, under the RADV Final Rule, would have had their findings extrapolated) could be suspended. However, it is unclear what position CMS will take…If CMS does not issue clarifying guidance in the very near term, plans should consider outreach to the agency that takes the position that any audits that CMS had planned to extrapolate are not valid.”
This regulatory limbo highlights why payers and providers alike must strengthen their internal audit readiness and compliance documentation.
AI in Risk Adjustment: Building Stability Amid Uncertainty
As regulations fluctuate, AI in risk adjustment is becoming a stabilizing force. Tools like RiskGen-i, 3Gen Consulting’s proprietary AI-powered risk adjustment platform, are redefining how plans and providers manage data accuracy, coding integrity, and audit preparedness.
Here’s how RiskGen-i helps organizations stay ahead:
- AI-Driven Risk Capture: Identifies potential HCCs and coding gaps missed in traditional reviews.
- Multi-Level Validation: Ensures data integrity across coder, reviewer, and auditor tiers.
- Regulatory Adaptability: Built to align with CMS’s evolving RADV frameworks and compliance protocols.
- Predictive Audit Readiness: Flags charts likely to trigger payer or CMS scrutiny.
Even amid policy shifts, AI-enabled risk adjustment workflows ensure compliance, accuracy, and transparency – creating long-term resilience for payers and provider groups.
Navigating What’s Next in Risk Adjustment Services
The RADV ruling underscores a larger truth: the future of risk adjustment is dynamic and data-driven. Healthcare organizations that thrive in this environment will be those that combine:
- Regulatory vigilance: staying current with CMS policy changes.
- Data-driven insights: leveraging analytics and AI to identify risk accurately.
- Operational scalability: using trusted partners to manage ongoing audits, coding, and compliance reviews.
At 3Gen Consulting, we deliver end-to-end risk adjustment services – from coding and QA to AI-powered chart analytics and audit defense. Our team and technology work together to give clients the clarity and control needed to navigate evolving RADV challenges.
Final Takeaway
This is not the end of changes in RADV audits. As CMS revisits its framework, MA plans, ACOs, and provider groups should treat this as an opportunity to reassess audit strategies, fortify compliance, and modernize technology infrastructure. Effective planning will require not only internal resources, but partnerships with vendors experienced in RADV audits.
3Gen Consulting offers proven expertise in risk adjustment services, from compliance-driven audits to scalable coding solutions. Whether you’re adapting your internal teams or seeking a partner to support your prospective risk adjustment efforts, we’re here to help you adapt, evolve, and lead. Contact us today to learn more.
References
[1] P. Minemyer, “Federal judge strikes down 2023 risk adjustment audit overhaul in win for Medicare Advantage plans,” Fierce Healthcare, 26 September 2025. Available: https://www.fiercehealthcare.com/payers/federal-judge-strikes-down-2023-radv-audit-overhaul-win-medicare-advantage-plans.
[2] R. King, “Medicare Advantage plans lose out in final RADV audit rule that ditches fee-for-service adjuster,” Fierce Healthcare, 30 January 2023. Available: https://www.fiercehealthcare.com/payers/medicare-advantage-plans-lose-out-final-radv-audit-rule-ditches-fee-service-adjuster.
[3] R. Wilson, “In blow to payers, CMS implements tougher Medicare Advantage audit rule,” Becker’s Healthcare, 30 January 2023. Available: https://www.beckerspayer.com/policy-updates/in-blow-to-payers-cms-implements-tougher-medicare-advantage-audits/.
[4] Crowell & Moring LLP, “Court Vacates CMS’s 2023 Final Rule on RADV Audits,” 26 September 2025. Available: https://www.crowell.com/en/insights/client-alerts/court-vacates-cmss-2023-final-rule-on-radv-audits.
