Aetna 2014 Annual Report Download - page 60

Annual Report- Page 54
record documentation maintained by health care providers and the resulting risk adjusted premium payments to the
plans. CMS may require us to refund premium payments if our risk adjusted premiums are not properly supported
by medical record data. The OIG also is auditing risk adjustment data of other companies, and we expect CMS and
the OIG to continue auditing risk adjustment data.
CMS revised its audit methodology for RADV audits to determine refunds payable by Medicare Advantage plans
for contract year 2011 and forward. Under the revised methodology, among other things, CMS will project the error
rate identified in the audit sample of approximately 200 members to all risk adjusted premium payments made
under the contract being audited. Historically, CMS did not project sample error rates to the entire contract. As a
result, the revised methodology may increase our exposure to premium refunds to CMS based on incomplete
medical records maintained by providers.
During 2013, CMS selected certain of our 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 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 require us to change to our method of estimating future premium revenue
in future bid submissions to CMS or compromise premium assumptions made in our bids for prior contract years or
the current contract year. For additional information, refer to “Regulatory Environment - Medicare” beginning on
page 35.
If we fail to report and correct errors discovered through our own auditing procedures or during a CMS audit or
otherwise fail to comply with the applicable laws and regulations, we could be subject to fines, civil penalties or
other sanctions which could have a material adverse effect on our ability to participate in these programs, and on
our financial condition, cash flows and operating results. CMS’s recent statements in formalized guidance regarding
“overpayments” to Medicare Advantage plans appear to be inconsistent with CMS’s prior RADV audit guidance.
These statements, contained in the preamble to CMS’ final rule release regarding Medicare Advantage and Part D
prescription drug benefit program regulations for Contract Year 2015, appear to equate each Medicare Advantage
risk adjustment data error with an “overpayment” without reconciliation to the principles underlying the fee for
service adjustment comparison contemplated by CMS’s RADV audit methodology. If Medicare Advantage plans
were not paid based on payment model principles that align with the requirements of the Social Security Act or such
payments were not implemented correctly, it could have a material adverse effect on our results of operations,
financial condition or cash flows.
Certain of our Medicaid contracts require the submission of complete and correct encounter data. The accurate and
timely reporting of encounter data is increasingly important to the success of our Medicaid programs because more
states are using encounter data to determine compliance with performance standards and, in part, to set premium
rates. We have expended and may continue to expend additional effort and incur significant additional costs to
collect accurate, or to correct inaccurate or incomplete, encounter data and have been and could be exposed to
premium withholding, operating sanctions and financial fines and penalties for noncompliance. We have
experienced challenges in obtaining complete and accurate encounter data due to difficulties with providers and
third-party vendors submitting claims in a timely fashion in the proper format, and with state agencies in
coordinating such submissions. As states increase their reliance on encounter data, these difficulties could affect the
Medicaid premium rates we receive and how Medicaid membership is assigned to us, which could have a material
adverse effect on our Medicaid operating results, cash flows and/or our ability to bid for, and continue to participate
in, certain Medicaid programs.
Any premium or fee refunds, adjustments or withholding resulting from regulatory audits, whether as a result of
RADV, Public Exchange related or other audits by CMS, the OIG, HHS or otherwise, including audits of our
minimum medical loss ratio rebates, methodology and/or reports, could be material and could adversely affect our
operating results, financial condition and cash flows. For more information see “Regulatory Environment”
beginning on page 26.