Aetna 2012 Annual Report Download - page 74

Annual Report- Page 68
early as March 2013. In addition, while Health Care Reform will significantly expand the number of people who
will qualify to enroll in Medicaid beginning in 2014, most states currently face significant budget challenges, and
several states are currently seeking to reduce their Medicaid expenditures; other states may take similar action. Our
government customers also determine the premium levels and other aspects of Medicare, Medicaid and dual eligible
programs that affect the number of persons eligible for or enrolled in these programs, the services provided to
enrollees under the programs, and our administrative and health care and other benefit costs under these programs.
In the past, determinations of this type have adversely affected our financial results from and willingness to
participate in such programs, and may do so in the future. For example, if a government customer reduces the
premium levels or increases premiums by less than the increase in our costs, such as not allowing us to recover
applicable Health Care Reform fees, taxes and assessments, and we cannot offset the impact of these actions with
supplemental premiums and/or changes in benefit plans, then our business and operating results could be adversely
affected.
In addition, premiums for certain federal government employee groups, Medicare members and Medicaid
beneficiaries are subject to retroactive adjustments by the federal and applicable state governments. CMS regularly
audits our performance to determine our compliance with CMS's regulations and our contracts with CMS and to
assess the quality of services we provide to our Medicare members.
CMS uses a risk-adjustment model which apportions premiums paid to Medicare Advantage plans according to
their members' health severity as supported by data provided by health care providers. As required under CMS' risk
adjustment methodology, we collect from health care providers and provide to CMS claim, diagnosis and encounter
data. We generally rely on providers to appropriately code the claim submissions and document their medical
records. CMS then determines the risk score and the payments we receive based on the health care data we submit
and member demographic data.
CMS performs RADV audits to validate coding practices and supporting medical record documentation maintained
by health care providers. CMS may require us to refund premium payments if our risk adjustment factors are not
properly supported by medical record data. CMS has selected certain of our Medicare Advantage contracts for the
2007 contract year for audit. In 2013, CMS is expected to notify Medicare Advantage plans that have been selected
for audit of their contract year 2011 payments. We believe that the OIG also is auditing risk adjustment data, and
we expect CMS and the OIG to continue auditing risk adjustment data for the 2007 contract year and beyond.
In February 2012, CMS published a Notice of Final Payment Error Calculation Methodology for Part C Medicare
Advantage Risk Adjustment Data Validation Contract-Level Audits (the “Notice”). The Notice outlines the
methodology that CMS will use to determine RADV audit premium refunds payable by Medicare Advantage plans
for contract years 2011 and forward. Under that methodology, the RADV audit premium refund calculation will
include an adjustment for the differences in documentation standards between the RADV audits and the risk
adjustment model; however, the Notice provides limited information about that adjustment. In addition, CMS will
project the error rate identified in the audit sample to all risk adjusted premium payments made under the contract
being audited. Historically, CMS did not make an adjustment for differences in documentation standards or project
sample error rates to the entire contract. During 2013, CMS is expected to select Medicare Advantage contracts for
contract year 2011 for audit. We are currently unable to predict which of our Medicare Advantage contracts will be
selected for future audit, the financial impact of that documentation standard adjustment, the amounts of any
retroactive refunds of, or prospective adjustments to, Medicare Advantage premium payments made to us, the effect
of any such refunds or adjustments on the actuarial soundness of our Medicare Advantage bids, or whether any
RADV audit findings would cause a change to our method of estimating future premium revenue in bid
submissions to CMS for the current or future contract years or compromise premium assumptions made in our bids
for prior contract years or the current contract year. For additional information, refer to “Regulatory Environment”
beginning on page 28.
Any premium refunds or adjustments resulting from regulatory audits, whether as a result of RADV or other audits
by CMS, the OIG or otherwise, could be material and could adversely affect our operating results, financial position
and cash flows. For more information see “Regulatory Environment - Medicare” beginning on page 39.