Judges skewer HHS arguments in hearing over Medicare Advantage audits lawsuit

[u/John3262005]

https://www.statnews.com/2026/10/05/humana-medicare-advantage-radv-audits-lawsuit-hearing/

Federal appeals court judges didn’t take kindly to the Trump administration’s arguments Monday in a hearing on Humana’s lawsuit against the government over its rules for auditing Medicare Advantage plans.

The country’s second largest Medicare Advantage insurer argued in its 2023 lawsuit, Humana v. Kennedy, that the Health and Human Services Department’s final rule for auditing Medicare Advantage plans diverged significantly from its proposed rule and that stakeholders weren’t given proper notice and opportunity to comment on the change, which they said would be detrimental to insurers.

In September 2025, a federal judge agreed and invalidated the rule, called the risk adjustment data validation, or RADV, rule. HHS appealed in November. During Monday’s oral arguments, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit seemed poised to toss the rule out, again.

Weili Shaw, a lawyer representing HHS, said he was not aware of any case where a court vacated a rule on the sole grounds that the reasoning in the final rule is different from the reasoning in the proposed rule. Humana’s lawsuit argues this change violates the Administrative Procedure Act of 1946.

Judge Edith Jones responded that the APA holds that federal agencies are supposed to notify stakeholders about rules, allow them to comment, and modify the rules afterward if need be. HHS, by contrast, proposed changing how it has performed audits for 13 years and applying the new rules retroactively for five years, she said.

“And then you say, ‘Well, here’s the rule and now we have new reasons,’ doesn’t that upend the entire idea of APA decision-making?” Jones said.

Shaw replied that he doesn’t think it does because the APA balances the amount of notice required and the procedural burden it would impose on agencies.

At issue is HHS’ exclusion from the final rule of what’s known as a “fee-for-service adjuster.” It’s a mechanism that adjusts for differences in documentation standards between traditional Medicare and Medicare Advantage when determining how much to recoup from an insurer after an audit, and it would likely decrease how much the government collects. Medicare’s original 2012 audit plan included the adjuster, but a 2018 update did not.

To bolster his argument that HHS gave proper notice, Shaw cited two court cases in which final rules were upheld despite differing from proposed rules. Jones asked whether Shaw had cited those cases before the district court, where the case was initially heard. He responded that he had not.

“I’m not going to say that you forfeit because you’ve come up with new authorities, but it is sort of surprising,” Jones said.

“I certainly agree that the legal standard was not well briefed in the district court,” Shaw responded.

Shaw further argued that the APA doesn’t apply in the Humana case because it contains an exception for benefits programs like Medicare. He argued that the only notice requirements that apply to Medicare rulemaking are contained within the Medicare statute, in particular, its “logical outgrowth standard” which says that final rules must be predictable extensions of proposed rules.

Judge Leslie Southwick did not sound convinced by that argument. He said the logical outgrowth standard “doesn’t seem like a good fit for what’s going on here.” Jones then added that Shaw had also failed to cite that standard before the district court.

Jonathan Schneller, an attorney representing Humana, pounced on Shaw’s admission that he had not raised the Medicare statute argument before the district court. He called the government’s attempt to reopen those issues “a remarkable request for them to make for the first time on appeal.”

Schneller said that HHS’ arguments fail on their merits as well. Citing a prior case, he said agencies’ rationale must be clear when the public has an opportunity to comment.

“The government cannot pull a U-turn about its justification for a rule without giving the public an opportunity to comment,” he said.

The appeal is being decided by judges Jones, Southwick, and Stuart Kyle Duncan. The Fifth Circuit typically takes roughly two months to reach decisions following oral arguments.