Trump Administration Appeals Court Decision Vacating Medicare Advantage Audit Rule

Federal government fights to preserve Biden-era RADV regulation amid massive audit expansion targeting billions in overpayments.

On November 24, 2025, the Trump administration announced it would appeal a September federal court decision that struck down a critical Medicare Advantage audit regulation, setting up a potentially years-long legal battle over how the government recovers billions of dollars in overpayments from private insurers. The appeal, filed with the Fifth Circuit Court of Appeals, comes as CMS Administrator Dr. Mehmet Oz simultaneously moves forward with an aggressive expansion of Medicare Advantage audits designed to identify and recoup improper payments—despite facing significant challenges in implementing the plan.

The Core Dispute: The RADV Rule and Fee-For-Service Adjuster

The legal dispute centers on the Risk Adjustment Data Validation (RADV) rule finalized in February 2023. The regulation dramatically changed how CMS audits Medicare Advantage plans and calculates overpayments, with the government initially estimating it would recover $4.7 billion over 10 years.

At the heart of the controversy lies the “fee-for-service adjuster,” a technical but financially significant component that CMS eliminated in the 2023 rule. Medicare Advantage plans receive risk-adjusted payments based on the health status of enrolled beneficiaries—the sicker a plan’s members appear on paper, the higher the monthly payment. When CMS conducts RADV audits, it reviews medical records to verify that diagnosis codes are actually supported by clinical documentation.

The fee-for-service adjuster, introduced by CMS in 2012, was designed to account for documentation differences between traditional Medicare and Medicare Advantage. The risk adjustment model determining MA payments was built using diagnosis data from traditional fee-for-service Medicare claims, which inevitably contain some level of coding imprecision. The adjuster created a baseline error rate, recognizing that documentation gaps exist even in fee-for-service data. MA plans would only be held responsible for overpayments exceeding this baseline.

In the 2023 final rule, CMS eliminated the adjuster entirely, arguing that subsequent research showed fee-for-service coding errors had no systematic effect on the risk adjustment model. Without the adjuster, MA plans face liability for any unsupported diagnoses found in audits, with no offset for comparable documentation issues in the underlying fee-for-service data.

Judge O’Connor’s September 2025 Ruling

On September 25, 2025, Judge Reed O’Connor of Texas’ Northern District sided decisively with Humana, which sued HHS in September 2023, vacating the entire 2023 RADV final rule on procedural grounds under the Administrative Procedure Act. The ruling found that CMS violated basic administrative law requirements by fundamentally changing its reasoning between the proposed rule (issued in 2018) and the final rule without providing adequate notice or opportunity for public comment.

In the 2018 proposed rule, CMS justified removing the adjuster by arguing it would create “inequities” between audited and non-audited plans. However, in the 2023 final rule, CMS introduced two entirely new legal justifications that were not a “logical outgrowth” of the proposed rule’s reasoning. This lack of proper notice prevented meaningful public dialogue.

The court also rejected CMS’s argument that any procedural errors were harmless, noting that companies like Humana relied on the previous methodology from 2018 through 2023 and will potentially bear “enormous unforeseen costs” as a result.

The November 24 Appeal

The federal government’s November 24, 2025, filing indicated it would take the case to the Fifth Circuit Court of Appeals, though the filing did not detail the specific grounds for appeal. A CMS spokesperson declined to comment on the litigation.

The appeal presents a complex political calculus. While the rule was finalized under the Biden administration, the Trump administration—through Dr. Oz’s leadership at CMS—has made cracking down on Medicare Advantage overpayments a signature priority. Without the ability to conduct robust audits and extrapolate findings, the government’s capacity to recover estimated overpayments would be severely compromised.

The Audit Expansion: Ambitious Plans Meet Implementation Challenges

Even as the legal battle continues, CMS is moving forward with expanded Medicare Advantage audits—though not without significant obstacles. In May 2025, the agency announced it would audit all eligible Medicare Advantage contracts—approximately 550 plans—for each payment year in newly initiated audits, representing a dramatic increase from the previous practice of auditing only about 60 plans annually.

The agency also planned to expand the number of records audited per plan from 35 to between 35 and 200 records, depending on plan size. To support this expansion, CMS announced plans to increase its team of medical coders from 40 to approximately 2,000 by September 1, 2025—a 50-fold increase in auditing capacity.

The Hiring Snag

However, by September 5, 2025, reports indicated that CMS’s progress toward meeting its September 1 hiring target remained unclear. When questioned about hiring progress, a CMS spokesperson declined to confirm whether any of the planned coders had been hired. A check of the federal USAJobs.gov website showed no posted openings for these positions.

CMS spokesperson Catherine Howden stated that “discussions regarding the scope and source of additional coder support are ongoing. The agency is evaluating operational and resource needs, including potential avenues to augment medical coding capacity.”

Despite these setbacks in workforce expansion, CMS has committed to completing a massive backlog of audits for payment years 2018 through 2024 by early 2026, meaning Medicare Advantage plans could still face multiple audit findings in rapid succession.

“We are committed to crushing fraud, waste, and abuse across all federal healthcare programs,” Dr. Oz stated when announcing the expansion. “While the Administration values the work that Medicare Advantage plans do, it is time CMS faithfully executes its duty to audit these plans and ensure they are billing the government accurately.”

The Broader Context: Medicare Advantage Overpayments

The RADV dispute occurs against a backdrop of escalating concern about Medicare Advantage overpayments. The Medicare Payment Advisory Commission estimated in March 2025 that Medicare will spend approximately $84 billion more on MA enrollees this year than it would if those beneficiaries were enrolled in traditional fee-for-service Medicare.

MedPAC attributes much of this overspending to “favorable selection” (MA plans attracting healthier beneficiaries) and “coding intensity” (MA plans documenting more diagnosis codes than would be found for similar patients in traditional Medicare). Federal estimates suggest annual overpayments of approximately $17 billion, while MedPAC’s estimates reach as high as $43 billion annually.

Implications for Healthcare Providers

The combination of legal uncertainty, ambitious audit plans, and implementation challenges creates significant complications for Medicare Advantage organizations and healthcare providers:

Retroactive Liability Questions: With the 2023 rule vacated but under appeal, it remains unclear which methodology applies to audits of payment years 2018 forward. Plans preparing responses to current audits lack certainty about the rules governing their liability.

Audit Volume Despite Hiring Delays: Even with delays in hiring coders, CMS continues to press forward with expanded audit activity. Plans must prepare for increased scrutiny even as the government struggles to build the necessary infrastructure.

Provider Contracting: Many Medicare Advantage organizations are incorporating financial penalties into their managed care contracts with providers for incomplete or inaccurate risk adjustment data. Plans will likely exercise contractual rights to recoup overpayments owed to CMS from providers who submitted documentation that doesn’t survive audit scrutiny.

What Healthcare Providers Should Do Now

Review MA Contracts Carefully: Examine managed care agreements with Medicare Advantage organizations to understand potential liability for risk adjustment overpayments identified in audits. Many contracts now include indemnification provisions or recoupment rights.

Strengthen Documentation Practices: Regardless of how the legal dispute resolves, thorough clinical documentation that supports all reported diagnoses is essential. Focus on ensuring chronic conditions are documented annually with sufficient clinical detail to survive audit scrutiny.

Monitor Both the Appeal and Implementation: Track the Fifth Circuit’s consideration of the government’s appeal while also watching for CMS announcements about actual audit implementation. The gap between ambitious plans and operational reality may create opportunities or additional risks.

Prepare for Increased Audit Activity: Despite hiring challenges, CMS’s stated intent to audit all Medicare Advantage plans annually means the probability that your documentation will be selected for audit has increased. Develop internal audit processes to identify potential vulnerabilities.

Understand Your Plan’s Audit Status: If you’re a provider working with Medicare Advantage plans, ask those plans about their current audit status and findings. Plans facing significant recoupment demands may seek to recover those amounts from providers, creating unexpected financial pressures.

The Trump administration’s November 24 decision to appeal demonstrates that recovering Medicare Advantage overpayments remains a top federal priority despite both legal setbacks and implementation challenges. The appeal could take years to resolve, potentially reaching the Supreme Court given the billions of dollars at stake.

Meanwhile, Dr. Oz’s aggressive audit expansion proceeds—albeit with significant workforce challenges that raise questions about how quickly CMS can actually implement its ambitious plans. The collision of legal uncertainty, dramatically intensified enforcement intent, and practical implementation obstacles creates a uniquely complex environment for all stakeholders.

For healthcare providers, the message is clear: Medicare Advantage documentation and compliance must be treated as top organizational priorities. While CMS faces hurdles in building its audit infrastructure, the direction of travel is unmistakable—an era of comprehensive scrutiny where every documented diagnosis may face verification, even as the rules governing that verification remain contested in federal court.

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