On September 25, 2025, Judge Reed O’Connor of the Northern District of Texas vacated the Centers for Medicare & Medicaid Services’ (CMS’) 2023 RADV Final Rule—the regulation that had dramatically raised the compliance stakes for Medicare Advantage (MA) plans. The ruling may look procedural on the surface, but its implications reach deep into how plans and providers must think about compliance, financial risk, and long-term strategy. 

Why This Matters 

The Risk Adjustment Data Validation (RADV) audit process is CMS’ way of verifying that the billions paid annually to MA plans are appropriate. Because MA payments are tied to risk scores—where higher patient acuity means higher capitated payments—CMS checks whether diagnoses submitted for payment are supported in the medical record. What makes RADV uniquely consequential is extrapolation: CMS takes a small sample of medical records, calculates an error rate, and then projects that rate across an entire contract. Even modest error rates can balloon into repayment demands of hundreds of millions. 

For example, if a plan has a contract covering 100,000 beneficiaries and CMS reviews a sample of 200 records and finds a 10% unsupported diagnosis rate, that 10% can be extrapolated across the entire population. If the average per-member annual risk-adjusted payment is $10,000, the projected liability can quickly reach $100M or more, even if the actual errors occurred in only a handful of charts. This is why the method creates such existential compliance risk. 

For years, CMS balanced this with what’s called the FFS adjuster. Since fee-for-service (FFS) Medicare has its own well-documented error rates and coding gaps, the adjuster recognized systemic imperfection and prevented MA plans from being held to a stricter standard than traditional Medicare. The 2023 RADV rule eliminated that safeguard.

Judge O’Connor didn’t rule on whether CMS’ position was fair; he ruled that the agency did not follow proper rulemaking procedure. By eliminating the adjuster without giving adequate notice that such a change was on the table, CMS violated the Administrative Procedure Act. 

The result: The entire rule, including expanded extrapolation authority and the removal of the adjuster, was vacated. 

The Strategic Pause

For compliance leaders, this isn’t the end of RADV, but a reset. Here’s the landscape as of today: 

  • Extrapolation authority is in question. Without the 2023 rule, the broad, contract-level extrapolation CMS authorized is on shaky legal ground. Pending audits could be challenged, and some may lack enforceability.
  • The FFS adjuster survives—for now. Plans regain the protection CMS tried to remove, but this is temporary. CMS has made clear it views the adjuster as unnecessary and will likely try to drop it again, this time with proper notice and comment. 
  • Documentation standards are still critical. The ruling doesn’t excuse poor documentation. Unsupported diagnoses still create exposure, even if the financial penalty mechanism has shifted. 

What Organizations Should Be Doing 

  1. Revisit Risk Models: Many plans recalibrated risk exposure to account for worst-case liability under the 2023 rule—full extrapolation without the adjuster. With the rule vacated, those models may overstate exposure. Update assumptions but keep stress-testing multiple scenarios. For example, the same 10% error rate that could have triggered a $100M liability under the 2023 rule might now result in only $30–40M after the FFS adjuster is applied. 
  2. Track CMS’ Next Steps Closely: CMS has three options: appeal, reinitiate rulemaking, or fall back to the pre-2023 method. Each has different timelines and outcomes. Appealing may prolong uncertainty; new rulemaking could take a year or more; reverting to prior practice offers short-term stability but doesn’t align with CMS’ stated policy preferences. 
  3. Audit Your Audits: For active or pending RADV audits, document the stage of each review. If you have appeals pending, this ruling may strengthen your case. Consider whether arguments around extrapolation and the adjuster gain new weight. 
  4. Strengthen Documentation Now: The best defense is still high-quality clinical documentation. Focus on provider education, coding accuracy, and proactive chart audits. Investments made here are not wasted—they pay dividends no matter which method CMS ultimately enforces. 
  5. Evaluate Historical Exposure: This pause is an opportunity to examine documentation trends across contracts and providers. Finding and remediating systemic gaps today reduces future liabilities, regardless of audit method. 

The Bigger Picture 

This case highlights the constant push and pull in regulatory enforcement. CMS pushes aggressively to recover what it sees as overpayments; courts enforce process and slow abrupt changes. For compliance professionals, the lesson is that rules are not static. Enforcement evolves through a cycle of proposals, litigation, adjustments, and renewed proposals. 

Programs built only for today’s rulebook will always be vulnerable to tomorrow’s shift. 

It also underscores a fairness issue that will continue to drive debate: Should MA plans be penalized for documentation gaps at a rate that exceeds baseline Medicare performance? CMS argues that plans should be fully accountable for every submitted diagnosis. Plans argue that perfection is impossible in a system where documentation is inherently variable. Until that policy tension is resolved, compliance will remain a moving target. 

The Bottom Line 

CMS’ most aggressive RADV enforcement strategy has been checked—at least temporarily. But this is not enforcement retreat, only recalibration. The compliance arms race is far from over. For organizations serving MA populations, this is the moment to reassess exposure, double down on documentation quality, and prepare for the next iteration of RADV. Staying agile—ready to pivot as rulemaking and litigation unfold—will be the defining trait of organizations that weather this volatility successfully. 

Don’t rest—recalibrate with VMG Health’s RADV & HCC Audit Readiness Services to stay ahead of impending compliance shifts. Our Coding Audit & Compliance experts help health plans and providers navigate the evolving audit landscape with confidence by identifying documentation gaps, strengthening HCC coding accuracy, and building defensible compliance strategies. From proactive chart reviews to risk modeling and scenario analysis, we provide the insight and structure needed to reduce exposure and protect revenue. Choosing VMG Health as your compliance partner means turning regulatory uncertainty into a strategic opportunity, making the difference between risk and resilience. Contact us to build your audit readiness together.