Why RADV extrapolation is reshaping Medicare Advantage economics

In 2025, Medicare Advantage (MA) plans face a new economic reality. The Centers for Medicare & Medicaid Services (CMS) is seeking to clamp down on improper payments. As a result, it has fundamentally altered the financial risk profile for every MA organization. The catalyst? RADV extrapolation.
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Before extrapolation: Risk, but manageable

Historically, RADV (Risk Adjustment Data Validation) audits were disruptive but contained. CMS would audit a relatively small sample of member charts—perhaps 30, sometimes up to 50 or 100—seeking documentation that supported the risk adjustment diagnosis codes submitted for payment. If CMS found unsupported diagnoses, the resulting financial recoupment was confined to those few affected members in the sample.

Plans could forecast audit exposure and treat repayments as a foreseeable, if unpleasant, part of doing business.

The change: From sample to population

That model is gone. Starting with Payment Year 2018, and now in full effect, the CMS RADV Final Rule leverages extrapolation in an effort to cut costs for the program that serves over 34 million Americans. This means that error rates identified in the audited sample are now applied to the entire MA contract’s population for that year. Instead of a few hundred or thousand dollars in risk, plans now face the possibility of repaying millions—sometimes even tens or hundreds of millions—stemming from what might have been only a modest percentage of errors in a limited chart review.

Extrapolation in action

Consider a hypothetical MA plan with 30,000 enrollees. CMS selects a sample of 200 member records from Payment Year 2021 for RADV audit. In this sample, CMS finds that 5% of the risk-adjusting HCCs (Hierarchical Condition Categories) lack sufficient supporting documentation. Under extrapolation, CMS will apply that 5% error rate not to the 200 members reviewed, but to all 30,000 members in the contract.

If the plan’s risk adjustment revenue for that year totaled $200 million, the extrapolated 5% error rate could result in a repayment demand of $10 million. Just a handful of missed or mis-documented diagnoses—perhaps as simple as a single missing chart for a chronic disease—now balloon into a staggering repayment figure that can erase margins for an entire line of business.

This isn’t just theory. CMS expects to recover nearly $5 billion over a decade using extrapolation, with some contract-level repayments estimated to be more than $400 million for a single audit cycle. The risk for plans, both large and small, is seismic.  

Economic ripples across the organization

The impact of this extrapolation regime is multi-layered and enduring:

• Revenue volatility: Multi-year audits create revenue uncertainty, as payment years from 2018 forward remain open to review, with the threat of sudden and retrospective recoupments.

• Reserve increases: Financial leaders must now model possible worst-case audit scenarios and set aside reserves accordingly, tying up resources and reducing available working capital.

• Operational overhead: Locating and retrieving records dating back seven years, updating coding practices for historical HCC models, and managing provider attestation require substantial investments in technology, staffing, and cross-departmental project management.

• Boardroom accountability: Executives must now update their boards—and sometimes investors—as to the material risks posed by audit findings, fundamentally reshaping strategic outlook and growth plans.

• Provider relations: MA plans have to renew education efforts with provider networks, often straining already complicated relationships, to ensure future documentation is bulletproof.

Compliance is now a core competency

This sweeping shift makes it clear: strict compliance and complete, accurate documentation aren’t just regulatory requirements—they’re a core economic function. MA plans don’t just need to respond faster to audits; they need to detect and correct gaps before CMS’s audit notice arrives.

New technology plays a critical role. AI-powered chart retrieval and document matching ensure old records are not just found but efficiently reviewed and matched to CMS requirements. NLP (natural language processing) assists coders in validating HCC assignments, applying current and historic risk models with a level of speed and consistency manual processes cannot match. Robust provider attestation workflows close the documentation loop for the most challenging cases.

The financial playbook for the extrapolation era

To weather this storm, leading plans are embracing an “always audit-ready” mindset:

• Build integrated platforms for retrieval, coding, attestation, and submission that span both historical and present-day data.

• Use automation and AI to surface unsupported HCCs and close documentation gaps throughout the year—not just when audit notices land.

• Invest in training and engagement with provider partners, emphasizing key clinical scenarios and attentive recordkeeping that stand up to extrapolated audits.

• Scenario-model reserves and forecast negative audit outcomes as part of standard financial planning.

• Treat compliance and revenue integrity as a single, multidisciplinary discipline, with executive sponsorship and the same rigor as enterprise risk management.

Conclusion: The new economics of Medicare Advantage

CMS has turned audit findings from limited, contained losses into a population-wide financial exposure—one that is likely to grow as audit cycles accelerate in the coming years. Plans that react only after the audit notice risk being caught unprepared, scrambling to find remote records while the clock ticks down on an eight-figure repayment.

Those who invest now in year-round audit readiness, intelligent automation, and comprehensive provider engagement will not only minimize repayments—they will carve out a competitive advantage in the most tightly regulated, rapidly expanding part of the U.S. health insurance market. In the age of extrapolation, economics and compliance have converged. The future belongs to those who treat them as two sides of the same coin.

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