Humana 2015 Annual Report Download - page 33

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premiums and services revenue associated with the TRICARE South Region contract accounted for
approximately 1% of our total premiums and services revenue. On April 1, 2012, we began delivering
services under the current TRICARE South Region contract that the Defense Health Agency, or DHA
(formerly known as the TRICARE Management Activity), awarded to us on February 25, 2011. The current
5-year South Region contract, which expires March 31, 2017, is subject to annual renewals on April 1 of
each year during its term at the government’s option. On January 22, 2016, we received notice from the
DHA of its intent to exercise its option to extend the TRICARE South Region contract through March 31,
2017. The loss of the TRICARE South Region contract, should it occur, may have a material adverse effect
on our results of operations, financial position, and cash flows.
• There is a possibility of temporary or permanent suspension from participating in government health care
programs, including Medicare and Medicaid, if we are convicted of fraud or other criminal conduct in the
performance of a health care program or if there is an adverse decision against us under the federal False
Claims Act. As a government contractor, we may be subject to qui tam litigation brought by individuals
who seek to sue on behalf of the government, alleging that the government contractor submitted false claims
to the government. Litigation of this nature is filed under seal to allow the government an opportunity to
investigate and to decide if it wishes to intervene and assume control of the litigation. If the government
does not intervene, the lawsuit is unsealed, and the individual may continue to prosecute the action on his
or her own.
• CMS uses a risk-adjustment model which apportions premiums paid to Medicare Advantage, or MA, plans
according to health severity of covered members. The risk-adjustment model pays more for enrollees with
predictably higher costs. Under this model, rates paid to MA plans are based on actuarially determined bids,
which include a process whereby our prospective payments are based on a comparison of our beneficiaries’
risk scores, derived from medical diagnoses, to those enrolled in the government’s traditional fee-for-service
Medicare program (referred to as "Medicare FFS"). Under the risk-adjustment methodology, all MA plans
must collect and submit the necessary diagnosis code information from hospital inpatient, hospital outpatient,
and physician providers to CMS within prescribed deadlines. The CMS risk-adjustment model uses the
diagnosis data to calculate the risk-adjusted premium payment to MA plans, which CMS adjusts for coding
pattern differences between the health plans and the government fee-for-service program. We generally rely
on providers, including certain providers in our network who are our employees, to code their claim
submissions with appropriate diagnoses, which we send to CMS as the basis for our payment received from
CMS under the actuarial risk-adjustment model. We also rely on these providers to document appropriately
all medical data, including the diagnosis data submitted with claims. In addition, we conduct medical record
reviews as part of our data and payment accuracy compliance efforts, to more accurately reflect diagnosis
conditions under the risk adjustment model. These compliance efforts include the internal contract level
audits described in more detail below.
CMS is continuing to perform audits of various companies’ selected MA contracts related to this risk
adjustment diagnosis data. We refer to these audits as Risk-Adjustment Data Validation Audits, or RADV
audits. RADV audits review medical records in an attempt to validate provider medical record documentation
and coding practices which influence the calculation of premium payments to MA plans.
In 2012, CMS released a “Notice of Final Payment Error Calculation Methodology for Part C Medicare
Advantage Risk Adjustment Data Validation (RADV) Contract-Level Audits.” The payment error
calculation methodology provides that, in calculating the economic impact of audit results for an MA
contract, if any, the results of the audit sample will be extrapolated to the entire MA contract based upon a
comparison to “benchmark” audit data in Medicare FFS (which we refer to as the "FFS Adjuster"). This
comparison to the FFS Adjuster is necessary to determine the economic impact, if any, of audit results
because the government program data set, including any attendant errors that are present in that data set,
provides the basis for MA plans’ risk adjustment to payment rates. CMS already makes other adjustments
to payment rates based on a comparison of coding pattern differences between MA plans and Medicare FFS
data (such as for frequency of coding for certain diagnoses in MA plan data versus the government program
data set).