The Benefits of Medicare Advantage Risk Adjustment

medicare risk adjustment model

This article discusses how CMS’s authority to adjust for differences between MA and traditional Medicare spending patterns is used to determine the risk score model. The article also highlights how the current risk score model underpredicts spending for enrollees with low expected spending and discusses CMS’ authority to increase payments to insurers with higher-risk enrollees.

CMS’ Authority to Adjust Differences in Coding Pattern

Increasing Medicare payments for MA plans may seem like an obvious solution. After all, these plans already experience overpayments. But adjusting for MA coding patterns could be problematic for various reasons:

  1. CMS may need help to measure and analyze MA coding practices properly.
  2. It may not accurately measure the costs of Medicare benefits in MA.
  3. Overpayments might deter providers from implementing innovative ways to improve their services.

Second, a more significant coding intensity adjustment would raise taxpayer costs of the MA program. However, it would also benefit enrollees and plans. A more significant adjustment would raise not only the cost of MA plans but also increase their profits. In 2018, CMS applied a coding intensity adjustment of 5.91% to the MA program. A more significant adjustment would increase MA revenue by one to four percent.

Third, MA enrollees may be sicker than traditional Medicare beneficiaries. Therefore, the statutory formula that determines the rates for enrollees in MA plans may unfairly penalize MA contracts. Instead, CMS could use other data, such as mortality rates or prescription drug use, to make adjustments. This way, the statutory formula could account for the difference between traditional and MA enrollees.

In addition, there are a few issues that CMS should consider. One of the most critical issues in calculating the relative risk of MA members versus traditional Medicare beneficiaries. This isn’t very easy to explain. Additionally, CMS may only be able to incorporate this method into statutes with complex and detailed statutory language.

CMS’ Current Risk Score Model 

Recent analyses have revealed that CMS’ current risk score model underpredicts spending for enrollees with low expected expenditures. To improve the predictive accuracy of risk scores, CMS proposes a two-stage estimation procedure. Under this scheme, the risk score would be increased for enrollees with lower expected spending and decreased for those with higher expected expenditures. Insurers would use the resulting risk score to determine how much they should pay into risk adjustment programs.

CMS has also proposed changing its medicare risk adjustment model to account for enrollees with disabilities, low income, and dual-eligible status. The proposed changes aim to improve predictive accuracy, but they might not address the underpayments of Medicare Advantage enrollees with multiple chronic conditions.

The CMS explained the changes in a blog post. To address these problems, it decided to include the condition count as a variable, limiting it to a maximum of ten. This is because enrollees with fewer conditions are typically healthier and lower cost than the average Medicare enrollee. In addition, enrollees with fewer conditions will have a lower risk score and lower expected spending. However, adding a condition may decrease a risk score.

Because of these challenges, CMS is exploring ways to improve its risk adjustment model. One suggestion is to use two years’ worth of medical claims rather than one. Another idea is to use pharmacy usage to assess risk.

CMS’ authority to Increase Payments To Insurers 

CMS’s authority to increase payments to insurers with higher-risk enrollees is a powerful tool for improving the quality of care for Medicare beneficiaries. The proposed rule uses a new risk adjustment methodology, the RxHCC. This methodology incorporates encounter and diagnosis data, which is expected to improve predictability and accuracy.

CMS’ proposed rule also calls for greater oversight of marketplace plans. The proposed rule would require insurers to meet time and distance standards for certain critical services. The new rules would require insurers to include ECPs in at least 35% of their service areas. If QHPs can’t meet this requirement, they could demonstrate that they include ECPs in “other” categories. Further, ECPs contracted in the lowest network tier would count toward the minimum percentage requirement. In addition, Rural Emergency Hospitals would be added to the list of ECPs.

The new rule would also require insurers to publish the rates they charge. Issuers will need to publish the rates they charge to their customers for plans they issue. If they fail to comply, CMS could impose civil money penalties on them. In some cases, CMS has penalized insurers for not adhering to the rules.

The risk adjustment provisions of the ACA aim to ensure that insurers compete on price and quality rather than lowering their rates. However, the ACA provisions will only work to the extent that insurers are willing to comply with data collection requirements and have confidence in the system.