A risk adjustment program makes behind-the-scenes financial transfers to encourage insurers to enroll sicker individuals. With these programs, a private insurer would have more incentive to offer insurance to individuals with costly conditions.
Medical coding plays a crucial role in risk adjustment. Certified medical coders must accurately report diagnoses on each claim.
Cost-Effectiveness
How does Medicare risk adjustment work? Medicare risk adjustment uses diagnoses captured on medical records submitted by providers to the Centers for Medicare & Medicaid Services (CMS) as part of the annual claims submission process. This data calculates a person’s risk score, which is then factored into the benchmarks and capitation rates paid to MA plans and MSSP ACOs. In this context, the accuracy of the data is critical to a plan’s financial performance.
While the current model does an admirable job of predicting future healthcare costs, some experts have argued that it ignores structural inequities in access to care and may even unintentionally worsen them. Since the model only looks at historical cost information, it doesn’t account for members who don’t use their health insurance because they need access to the medical services they need.
To address this, CMS has changed how diagnosis codes are grouped to identify risk factors. A smaller group of roughly one hundred diagnoses is formed by the new system, known as Hierarchical Condition Categories, or HCCs, which combine thousands of International Classification of Diseases codes.
As a result, not all diagnoses will impact a person’s risk score. Sometimes, a diagnosis code relevant to one health insurance model may not apply to another. In turn, this may reduce the incentive for plans to disproportionately attract relatively healthy patients and decrease the risk that they will be penalized for doing so.
Access to Care
Healthcare access is “the timely use of personal health services to achieve the best possible health outcomes.” Beneficiaries with access challenges report difficulty getting the medical services they need and delaying health care because of costs. Despite these barriers, most Medicare beneficiaries have broad access to physicians, hospitals, and other facilities. Most Medicare Advantage enrollees report satisfaction with the quality of care they receive. A small share of physicians choose to “opt out” of Medicare and may charge their patients whatever fee they wish, reducing the availability of services for some enrollees. Psychiatrists are one such specialty and have been reported to be particularly difficult to access.
The risk adjustment model utilized by Medicare Advantage Plans and MSSP ACOs is based on a series of diagnosis codes. Providers record these diagnosis codes during a member’s medical appointment and then send them to the plan through claims and encounter data. These diagnoses are then grouped into risk categories to determine future health plan payments.
It’s important that the coding for each disease and its interaction with other conditions is accurate at the point of care. It is essential to ensure that members’ healthcare needs are documented, charted, and accurately reflected in medical records and, ultimately, in claims and encounter data for Medicare risk adjustment purposes.
Predictive Modeling
While risk adjustment might sound arcane, it plays a vital role in individual beneficiaries’ health and care experience. It helps ensure that Medicare Advantage plans are compensated fairly for their enrollees’ expected healthcare costs, and it also helps to ensure that a plan’s contracted providers don’t have incentives to avoid sicker patients who would cost more.
A person’s risk score is based on diagnosis information submitted annually for reimbursement. This information is grouped using the Hierarchical Condition Category (HCC) model, which summarizes thousands of diagnosis codes from the International Classification of Diseases into over a hundred HCCs that reflect standard disease states. Health plans and CMS use these HCCs to calculate a patient’s risk score.
Because the HCCs change over time, so does a person’s risk score. A new set of HCCs is assigned each year, and the prior year’s risk score is reset. It means a person’s risk score can go up or down each year based on the number of diagnoses submitted for reimbursement that match HCCs in the new model.
The accuracy of this modeling is essential because it impacts the amount of risk-adjusted payments a health plan receives from CMS to finance its Part D drug benefit. As the portion of total drug spending attributed to risk-adjusted payments increases under Part D benefit redesign, this could result in financial losses for plans if their coding is inaccurate for a particular condition.
Compliance
For payers, ensuring that medical records and encounter data are documented accurately is essential to a substantial risk adjustment program. However, with the increasing adoption of new models of care that shift financial risk to physicians, such as ACOs and bundled payments, accurate coding is even more critical.
Its heightened focus on adherence to regulatory guidelines comes at a time of significant change for Medicare Advantage. With a variable cadence of updates and a broad spectrum of potential guidance, health plans leverage partners who can offer deep expertise in their core content to support the most effective implementation of regulatory changes.
Payer organizations that fail to implement these changes appropriately risk paying substantial fines and other penalties and possibly losing their competitive edge in the market. Achieving compliance requires a holistic approach to risk adjustment, focusing on continuous improvement and stakeholder collaboration.
One of the biggest challenges for Medicare Advantage health plans is managing the complexities of the CMS HCC coding model. With thousands of nuanced codes, it can be difficult for health plans to develop comprehensive and compliant policies and procedures around their coding process. In addition, Medicare Advantage health plans must continually address evolving industry standards. They can face enforcement from regulatory bodies if they are found to have engaged in fraudulent activities related to collecting or reporting risk adjustment information.