The Medicare Advantage (MA) industry faces its most significant compliance challenge in recent memory. CMS’s announcement to audit ALL eligible MA contracts annually—expanding from approximately 60 plans to 550—represents a seismic shift that demands serious attention from industry stakeholders.
The Scale of Change
The numbers alone tell a compelling story. We’re looking at a 9x increase in audit volume, with sample sizes expanding dramatically from 35 records to up to 200 per plan. CMS is simultaneously hiring 2,000 medical coders and deploying advanced technology to identify unsupported diagnoses. Given the estimated $17-$43 billion in annual overpayments, this enforcement action appears both inevitable and necessary from a policy perspective.
What is most striking about this development is how it fundamentally alters the operational landscape for MA plans. The traditional model of sporadic, delayed audits allowed organizations to maintain relatively relaxed data management practices. That era is definitively over.
Operational Reality Check
Having observed the industry’s response to previous regulatory changes, this change will hit most plans like a tsunami. The operational requirements are staggering:
Multiple years of audits will occur simultaneously as CMS works through backlogs by 2026. Plans accustomed to managing periodic reviews with manual processes will likely find themselves overwhelmed. The old approach of scrambling to gather documentation after receiving audit letters simply won’t scale to this new reality.
Critical Data Management Gaps
Through industry conversations and observations, several persistent challenges emerge that become catastrophic under intensive audit scrutiny:
Inadequate Data Collection Current plan processes align with collecting data needed for audit as a special effort that concentrates right before the submission timeline. With the sample size increasing and audits happening every year, this process will have significant scale challenges.
System Fragmentation continues to plague most organizations. Risk adjustment data scattered across claims platforms, EMRs, vendor databases, and chart review tools creates operational nightmares when assembling complete pictures for 200 members across multiple years.
Documentation Gaps represent perhaps the most concerning issue. Many diagnoses lack readily accessible supporting documentation—a reality that organizations often discover only during audits, when remediation options are limited.
What Success Requires
Based on regulatory requirements and industry best practices, three fundamental capabilities appear essential:
Ongoing Data Integration becomes non-negotiable. Organizations must change processes and add technology to collect and prepare data for audit continuously. This requires systematic ingestion and reconciliation of claims data, EMR records, provider submissions, and historical audit findings.
Proactive Documentation Management shifts the paradigm from reactive compliance to continuous monitoring. Technology solutions that flag potentially unsupported diagnoses before submission enable proactive remediation—essentially creating continuous self-auditing capabilities.
Instant Audit Response Infrastructure addresses the practical reality of managing large-scale audit requests. When CMS requests documentation for 200 members, organizations need immediate access to complete, organized records through centralized repositories with clear audit trails.
Recommended Approaches
Industry leaders should consider several strategic approaches:
Focus Initial Efforts on diagnoses with historically high error rates. CMS data consistently shows certain HCCs failing validation at elevated rates, making these logical starting points for improvement efforts.
Implement Continuous Internal Auditing rather than waiting for official audit letters. Monthly internal reviews using CMS methodology can identify and remediate issues proactively.
Invest in Provider Education to address root causes. Many documentation gaps originate at the point of care, making provider education and real-time coding quality feedback essential.
Build Cross-Functional Response Teams that integrate risk adjustment, clinical, quality, IT, and operations functions. Audit response cannot remain siloed in compliance departments.
Implement Proactive Chart Documentation Gathering to address a fundamental gap in current processes. Providers typically do not submit chart records for diagnoses during claims or encounter submission, leaving plans without supporting documentation when audits arrive. Organizations should use technology to solicit immediate chart documentation for new diagnoses and automate this process to reduce administrative costs while ensuring audit readiness.
The Strategic Opportunity
While CMS’s announcement creates significant compliance pressure, it also presents strategic opportunities for forward-thinking organizations. The data infrastructure investments required for audit readiness often deliver additional benefits: improved risk adjustment accuracy, reduced provider friction through cleaner processes, enhanced member care through better condition documentation, and optimization of legitimate risk adjustment revenue.
Industry Outlook
The choice facing MA plans is straightforward but not simple: build robust data infrastructure proactively or struggle reactively under mounting audit pressure. Organizations clinging to fragmented, manual processes will likely face significant operational challenges, substantial recoupments, and difficulty maintaining normal operations.
Conversely, those investing in unified, real-time data capabilities position themselves not just for compliance success but for competitive advantage in an increasingly data-driven industry.
CMS’s aggressive audit expansion makes data excellence a fundamental business requirement rather than a nice-to-have capability. The industry’s response to this challenge will likely separate high-performing organizations from those struggling to adapt to Medicare Advantage’s evolving regulatory environment.
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About Lilac
Are you looking for support in strengthening your plan’s readiness for a more intensive audit regime? Lilac Software has created a state-of-the-art technology platform that automates data collection across a health plan. To start a conversation with the Lilac team, reach out by filling out the form in this link.
