Court Vacates CMS’s 2023 Final Rule on RADV Audits

What Happened?

On September 25, 2025, the Northern District of Texas granted plaintiffs’ motion for summary judgment in Humana v. Becerra, vacating CMS’s 2023 Final Rule regarding risk adjustment data validation (RADV) audits. In the litigation, Humana challenged CMS’s decision in the Final Rule to not continue applying a Fee-for-Service (FFS) adjuster to its RADV audit methodology.

In the decision, Chief Judge O’Connor found that the Final Rule was procedurally invalid because CMS’s reasoning for abandoning the FFS adjuster was not a “logical outgrowth” of the reasoning presented in its 2018 Proposed Rule. The court further found that CMS violated Administrative Procedure Act (APA) procedural requirements by adopting new justifications in the Final Rule for eliminating the FFS adjuster than the justifications in the Proposed Rule. The Court did not address Humana’s alternative arguments that (i) the Final Rule was arbitrary and capricious and contrary to law because it reversed CMS’s FFS Adjuster policy without an adequate explanation and (ii) CMS abused its discretion in deciding to apply the new policy retroactively beginning in payment year 2018 because it relied solely on legal justifications that misinterpret the Medicare statute.

Notably, the court rejected the government’s argument—among several others—that CMS’s failure to satisfy the APA’s notice-and-comment requirement was “harmless as there is no likelihood that the result would have been different because [CMS’s] interpretation is the ‘the best reading of the statute’ under Loper Bright.” In rejecting this argument, the court noted the lack of federal precedent to support such a holding, and that the Final Rule lacked a “meaningful dialogue regarding the costs and benefits of the surprise changes”:

The harm caused by the lack of discussion—which is an independent ground for vacatur and remand—is exacerbated by the Final Rule’s application back to 2018. While the Parties dispute whether this is impermissibly retroactive, it is undisputed that companies like Plaintiffs relied upon and operated under the old rule’s guidance from 2018–2023. Consequently, Plaintiffs, and others, will potentially bear enormous unforeseen costs as a result of their reliance on CMS’s nearly thirteen-year-old position from 2018–2023. Thus, the Court concludes that Defendants’ error was not harmless.

Humana v. Becerra at 14.

Ultimately, the court vacated the RADV Final Rule and remanded the matter to the agency for further consideration.

Can the agency appeal and, if it does, what happens next in the case?

The government has 60 days to appeal the decision to the 5^thCircuit Court of Appeals. If CMS appeals, the appeal would not have the immediate impact of stopping the effect of the district court’s order. However, the agency could seek to stay the effect of the order pending the appeal, but it is not likely the agency would succeed in doing so. Crowell & Moring attorneys are closely monitoring the case for any appeals.

What does this mean for existing RADV audits?

This ruling has significant implications for the Medicare Advantage industry, including both initiated, and soon-to-be-initiated, RADV audits. Because the RADV Final Rule was vacated, RADV audits for PY 2018 and beyond (i.e., those RADV audits that, under the RADV Final Rule, would have had their findings extrapolated) could be suspended. However, it is unclear what position CMS will take. For instance, CMS may take the position that the audits can proceed while it determines whether it can issue new notice-and-comment rulemaking to re-articulate its authority to extrapolate the findings without the FFS adjuster. These audits are currently pending with deadlines fast approaching and could be initiated soon.

If CMS does not issue clarifying guidance in the very near term, plans should consider outreach to the agency that takes the position that any audits that CMS had planned to extrapolate are not valid. This outreach will help create a record if the agency takes the position that plans need to continue to respond to audits for PY 2018 and beyond. Any audits for plan years prior to PY 2018 are likely to continue as planned, as they were not directly impacted by the vacated Final Rule.

We expect CMS to address this court decision in its upcoming September 30 webinar with plan representatives.

What other steps should Medicare Advantage organizations consider?

The rationale presented by the Northern District of Texas could support further legal challenges to CMS’s recent announcements that substantively change the agency’s historical RADV audit policies, including the non-transparent use of artificial intelligence, intention to audit to all contracts rather than a selection, increasing the sample size to 200, reducing the number of medical records accepted, accelerated timetables, and reducing submission windows.

Crowell & Moring attorneys have the subject matter knowledge and expertise to help Medicare Advantage organizations assess potential bases for challenging CMS’s new approach to RADV audits.

For more information, we encourage all Medicare Advantage organizations to review our strategic playbooks on audits and appeals and potential legal challenges, and to reach out to their preferred Crowell attorney for individual guidance.