On September 25, 2025, a federal court issued a significant ruling that directly impacts the landscape of Risk Adjustment Data Validation (RADV) audits for Medicare Advantage Organizations (MAOs). In the case of Humana Inc. v. Xavier Becerra,¹ Judge Reed O’Connor’s ruling² does not address the substance of the 2023 final rule itself, but dismisses the rule on procedural grounds under the Administrative Procedure Act (APA), creating immediate uncertainty for audits covering payment years 2018 and beyond.

This summary outlines the court's decision and discusses some potential paths forward for CMS and MAOs.

Background: The final rule and the FFS adjuster

The case centered on the final rule issued by CMS on February 1, 2023. This rule formalized a policy allowing CMS to audit a small sample of a Medicare Advantage (MA) contract's enrollees and then use statistical extrapolation to calculate alleged overpayments across the entire contract population, which CMS could then pursue for recovery. A summary of that final rule can be found here in our article from 2023.³

A critical component of the Humana’s complaint was the final rule's elimination of the fee-for-service (FFS) adjuster. The Medicare statute requires that payments to MAOs be "actuarially equivalent" to what CMS would expect to pay for the same enrollees under the traditional FFS Medicare program. CMS initially adopted the FFS adjuster in 2012 to maintain this equivalence. The adjustment accounted for the known presence of some unsupported diagnosis codes in the FFS claims data used to set MA payment rates, offsetting the errors found in audited MA plan data. By eliminating the FFS adjuster, the final rule would have compared audited and fully documented MA data to the raw and unvalidated FFS data used for rate setting, which is a discrepancy that MAOs, including Humana, argued was actuarially unsound.

The court's ruling: A procedural violation

The court granted summary judgment in this case, invalidating the entirety of the 2023 final RADV rule. Notably, it did so without addressing the legality of eliminating the FFS adjuster or the legality of extrapolation, two primary issues in the case. Instead, the decision rested on a procedural failure by CMS during the rulemaking process.

At the heart of the court’s ruling was Judge O’Connor’s finding “that the final rule is procedurally invalid as it was not a ‘logical outgrowth’ of the proposed rule.” This standard requires that an agency's final rule be reasonably foreseeable from its proposed rule, ensuring the public has a fair opportunity to comment on the agency's reasoning.

The court found that CMS performed what the court termed a "surprise switcheroo" in its justification for eliminating the FFS adjuster.

• In the proposed rule (2018), CMS provided two supporting arguments for its approach:
  1. An empirical study it conducted (which we wrote about here⁴ and CMS later abandoned).
  2. The idea that applying an adjuster only to audited plans would, in CMS’ words “introduce inequities between audited and non-audited plans.”
• In the final rule (2023), CMS departed from its initial justifications published in 2018 and introduced two entirely new legal justifications:
1. The statute's “actuarial-equivalence mandate does not apply [to RADV audits] as a matter of law.”
2. A separate "Coding-Intensity Adjustment" already addresses the issue, making the FFS adjuster inappropriate.

Judge O’Connor determined these new justifications were not a "logical outgrowth" of the initial proposed rule. The court stated, in essence, that interested parties should not have reasonably anticipated that CMS's discussion about "inequities" between MAOs would result in a fundamental reinterpretation of actuarial equivalence as it relates to the statute itself.

CMS also tried to argue that any procedural errors were harmless. The court also rejected this argument, highlighting that the lack of proper notice prevented a meaningful public dialogue on the issue of whether the FFS adjuster should apply in a RADV audit. Further, the ruling states “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.”

The government also argued that agencies “did not have ‘an obligation to seek comment on [their] statutory interpretations.’” The court commented that the argument “plainly fails. Defendants’ assertion is based on the premise that interpretive rules, unlike legislative rules, need not be subjected to notice and comment.” The requirement for actuarial equivalence in the MA payment model is legislated and “[i]t is a longstanding principle that actuarial equivalence applies to RADV audits.”

Immediate implications and what happens next

The court’s order is clear: The final rule is "VACATED and REMANDED for further consideration," that is, the rule is nullified and no longer in effect.

This has several critical implications for MAOs:

1. Invalidation of the current audit framework: The legal foundation and operational framework for CMS to conduct RADV audits using statistical extrapolation for payment years 2018 through the present no longer applies, reverting to the 2012 standard. This throws into question the validity of any audits CMS has announced or planned to conduct under this methodology, inclusive of the recently announced large scope of the 2018 to 2024 RADV audits.⁵
2. Uncertainty prevails: While a victory for Humana and other MAOs, the decision continues the significant uncertainty surrounding RADV. The core policy dispute over RADV extrapolation and actuarial equivalence continues to remain unresolved.

Looking ahead, CMS has several potential options, among others not considered below:

• Appeal the decision: The government has the right to appeal the district court's decision to a court of appeals, and potentially to the Supreme Court.
• Issue a new final rule: CMS could return to the original 2018 proposed rule and issue a new final rule with justifications that are a "logical outgrowth" of that proposal. This would likely mean re-engaging with the "inequities" argument it previously abandoned or defending the empirical analysis that was widely criticized. Furthermore, proceeding to a final rule may create new procedural challenges as most Medicare-related rules must be finalized within three years of the proposed rulemaking, though limited extensions may occasionally be granted.
• Start the rulemaking process over: Given the court's rebuke of its process, CMS may choose to abandon the 2018 proposal entirely and begin a new, comprehensive notice-and-comment rulemaking process from scratch. This would be the most time-consuming option but would allow the agency to build a new administrative record for its desired policy.

CMS requires MAOs to retain records to be available for CMS review or audit⁶ for at least 10 years after a plan year; thus CMS has several years to pursue this issue and still audit plans for the 2018 and subsequent period.

We will continue to monitor this situation closely as it develops and provide updates on appeals or new actions from CMS. This ruling is significant for the Medicare Advantage program and potentially resets the rule-making process. One thing is certain; debate around RADV will persist for years to come.

¹ Humana Inc. and Humana Benefit Plan of Texas, Inc., vs. Xavier Becerra, in his official capacity as Secretary of the United States Department of Health and Human Services, and United States Department of Health and Human Services. (September 25, 2025). United States District Court, Northern District of Texas, Fort Worth Division. Retrieved September 29, 2025, from https://litigationtracker.law.georgetown.edu/wp-content/uploads/2023/09/Humana-Inc._2025.09.25_ORDER-ON-MOTION-FOR-SUMMARY-JUDGMENT.pdf.

² United States District Court Northern District of Texas Fort Worth Division. Case 4:23-cv-00909-O.

³ Pipich, R., Cross, K., & Rothschild, M. (February 8, 2023). Medicare Advantage Risk Adjustment Data Validation (RADV) final rule. Milliman. Retrieved September 29, 2025, from https://www.milliman.com/en/insight/medicare-advantage-risk-adjustment-data-validation-radv-final-rule.

⁴ Pipich, R. (August 23, 2019). Medicare Advantage RADV FFS adjuster. Milliman. Retrieved September 29, 2025, from https://www.milliman.com/en/insight/Medicare-Advantage-RADV-FFS-adjuster.

⁵ CMS. Retrieved on September 25, 2025 from https://www.cms.gov/newsroom/press-releases/cms-rolls-out-aggressive-strategy-enhance-and-accelerate-medicare-advantage-audits.

⁶ Centers for Medicare and Medicaid Services. (September 2010). Medical record retention and media format for medical records. Retrieved September 29, 2025, from https://www.cms.gov/files/document/mlnpodcastmedicalrecordretentionandmediaformatpdf#:~:text=CMS%20requires%20that%20providers%20submitting,patient%20records%20for%2010%20years.