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Sep 28, 20237 min read

Navigating Risk Adjustment in Medicare Advantage Models in 2022

Updated: Oct 10

Medicare Advantage (MA) continues to be a growing option for Medicare beneficiaries, with enrollment increasing nearly 60% over the last decade. As of 2022 and 2023, over 28 million people are covered under Medicare Advantage Plans, accounting for nearly half of all Medicare enrollees. This rapid growth has been facilitated in part by risk adjustment models that pay MA plans based on the health risk of their enrollees.

However, risk adjustment in MA is complex and plans must stay up-to-date on the latest models and guidance to ensure accurate reimbursement. This article will provide an overview of risk-based Medicare Advantage payments, discuss updates for 2022, and outline strategies for plans to optimize risk adjustment operations.

How Risk Adjustment Impacts Medicare Advantage Plans Reimbursement

At its core, risk-based Medicare adjustment models seeks to reimburse MA plans appropriately based on the expected costs of covering a given beneficiary. This is done using a risk adjustment factor or “risk score” derived from a beneficiary’s diagnoses, demographics, and other variables.

Plans with older and sicker enrollees will have higher average high-risk scores, justifying higher payments to account for greater anticipated medical spending. Conversely, plans with younger and healthier populations will receive lower risk scores and capitation payments bench marked to lower projected premium costs.

Accurately capturing risk is crucial for MA plans. Under risked contracts lose money over the long-run as actual medical expenses outpace received revenue. On the other hand, plans don’t want to significantly overstate risk as this raises the possibility of audits and over payment penalties down the road.

Medicare Advantage Risk Adjustment Model Updates

The specific risk adjustment model used by the Centers for Medicare & Medicaid Services (CMS) to calculate risk scores and payments has evolved over time:

CMS-HCC Model – Introduced in 2004, this was the original model based on beneficiaries’ demographic data and diagnosis codes.
CMS-HCC ESRD Model – Launched in 2010, this version incorporated adjustments for enrollees with end-stage renal disease (ESRD).
CMS-HCC Duration Model – Implemented in 2014, the duration model differentiated payment by whether a condition was newly identified or existing.
CMS-HCC Community Model – The current model effective as of 2018, it includes separate factors for new enrollees vs. continuing enrollees.

For 2022, CMS is maintaining the existing CMS-HCC risk adjustment model without any major methodology changes. However, CMS finalized two adjustments:

A coding pattern adjustment reducing risk scores by 5.90% to account for observed MA coding intensity growth versus Medicare Fee-for-Service. This adjustment was 4.95% in 2021.
A temporary one-time +3.0% COVID-19 risk score bump for the 2022 payment year recognizing the elevated costs of treating COVID patients.

Overall, most MA plans will see modest risk score increases in 2022. Navigating risk adjustment remains crucial for competitiveness and profitability even without methodology changes.

Best Practices for Medicare Advantage Risk Adjustment Programs

Given the material impact of risk adjustment on plan reimbursement, having a well-designed and optimized program is critical. Here are some leading practices for health plans:

Reflect diagnoses and risk early and comprehensively. Capture all conditions impacting member health status through mechanisms like health risk assessments. Document diagnoses consistently and completely.

Engage providers to improve coding. Educate physicians on proper diagnostic coding and offer training. Ensure they understand risk adjustment and its revenue impact.

Improve data capture and quality. Leverage tools like natural language processing to extract insights from unstructured clinical data. Maintain clean, accurate data.

Perform risk verification. Validate diagnoses, do audits, and run quality checks to confirm codes are supported and avoid over coding.

Monitor performance metrics. Track key risk adjustment indicators like risk score growth and audit results versus targets and peers.

Keep pace with methodology changes. Stay updated on CMS model adjustments and integrate changes into programs to maintain accuracy.

Take a whole-patient approach. Look beyond diagnoses to social determinants of health, behaviors, and gaps in primary care that may signal unidentified risk.

Optimize coding operations. Centralize HCC risk adjustment coding rather than leaving completeness up to individual providers. Consider outsourcing to coding experts.

Pursue advanced analytics. Apply machine learning to uncover undocumented conditions based on patterns in medical history data.

With proper assessment of entering members, continuous and complete diagnosis coding, and monitoring of risk scores, MA plans can ensure accurate reimbursement while avoiding compliance issues.

Focusing on risk adjustment is even more important for newer MA entrants competing against incumbent players with years of diagnosis data advantages. Eliminating under coding is critical for growth.

Changes Present New Risk Adjustment Considerations

While the CMS-HCC model itself remains stable, plans should be aware of broader policy and market shifts impacting risk adjustment:

Growth in value-based care - More providers participating in ACOs and advanced payment models means MA plans need tightened coordination and data integration with network partners.
Vertical integration acceleration – Health systems launching their own MA plans gain access to extensive medical records that may allow more comprehensive risk assessment.
Employer group MA expansion – Employers new to offering MA plans may lack experience optimizing risk adjustment vs. established insurers.
Increasing oversight – CMS audit scrutiny is increasing with violations resulting in stiff penalties, requiring diligence.
Competitive pressure – New plan entrants and rising Stars cutoffs make accurate coding critical for maintaining market position.

While the foundations of risk adjustment remain consistent, plans need to stay vigilant regarding changes impacting risk management strategies and best practices.

What Lies Ahead for Medicare Advantage Risk Adjustment

Current demographic and health cost trends point to continued growth in Medicare Advantage enrollment over the coming decade. This means risk adjustment will remain a pivotal program for established payers and new entrants alike.

We can expect ongoing enhancements to the CMS-HCC model in the years ahead as policymakers try to balance payment accuracy, reduce improper incentives, improve transparency, and integrate value-based reimbursement through mechanisms like risk adjustment.

Health plans able to implement comprehensive, compliant risk adjustment programs while demonstrating high quality and member satisfaction will be well-positioned to thrive in the expanding MA market.

At the same time, CMS and other payers are likely to increase scrutiny of MA coding, documentation, and risk adjustment practices through audits and enforcement. Plans must ensure integrity to avoid penalties.

Risk adjustment in Medicare Advantage involves complexity but drives material revenue differences between plans based on the health status of enrolled populations. staying up-to-date on evolvingCMS models and fine-tuning programs offers significant competitive advantages.

FAQs

Is Medicare Advantage risk-based?

Yes, Medicare Advantage Plans are risk-based. Risk adjustment is a statistical method used to estimate and account for the health status of the Medicare Advantage population. It helps ensure that payments to Medicare Advantage Plans are appropriate based on the risk level of their enrollees.

What is risk adjustment in Medicare Advantage?

A: Risk adjustment in Medicare Advantage is a process that takes into account the health status and needs of the Medicare Advantage population. It helps adjust payments to plans based on the risk level of their enrollees, ensuring that plans with higher-risk individuals receive adequate funding to provide necessary care.

How does risk adjustment work?

Risk adjustment in Medicare Advantage works by using a combination of data, including claims data and diagnoses codes, to estimate the expected costs of care for each Medicare Advantage beneficiary. The risk adjustment model considers factors such as age, sex, health conditions, and demographics to calculate a risk score for each enrollee.Why is risk adjustment important in Medicare Advantage?

Risk adjustment is important in Medicare Advantage because it helps address the higher costs of care for individuals with complex health conditions or higher risk levels. It ensures that plans are paid appropriately for the care they provide, taking into account the additional resources needed to manage and treat higher-risk populations.

What is the difference between Medicare Advantage and traditional Medicare?

Medicare Advantage is an alternative to traditional Medicare. While traditional Medicare is a fee-for-service program administered by the federal government, Medicare Advantage Plans are offered by private health plans approved by Medicare. Medicare Advantage Plans often provide additional benefits, such as prescription drug coverage and care management programs.

How does risk adjustment affect Medicare Advantage beneficiaries?

Risk adjustment affects Medicare Advantage beneficiaries by ensuring that plans receive appropriate funding based on the risk level of their enrollees. This helps ensure that plans can adequately provide necessary care, manage chronic conditions, and improve health outcomes for their beneficiaries.

What role does coding play in risk adjustment?

Coding plays a crucial role in risk adjustment. The use of accurate and complete diagnosis codes helps capture the health status and conditions of Medicare Advantage beneficiaries, which is essential for determining risk scores and appropriate payments to plans.

Does risk adjustment only apply to health plans?

No, risk adjustment is not limited to health plans. Risk adjustment is used in various healthcare settings, including Medicare Advantage, Medicaid, ACO s (Accountable Care Organizations), and even employer-based risk contracts. It helps ensure fair and accurate payments based on the health risk of the populations being served.

Will risk adjustment continue to be used in the future?

Yes, risk adjustment is expected to continue being used in the future. It plays a critical role in maintaining fairness and equity in the Medicare Advantage program and other healthcare payment systems. The Centers for Medicare and Medicaid Services (CMS) regularly assess and refine the risk adjustment methodology to improve its accuracy.

How does risk adjustment impact the healthcare system as a whole?

Risk adjustment impacts the healthcare system by ensuring appropriate payments to plans based on the risk level of their enrollees. It encourages plans to enroll higher-risk individuals and invest in care management programs to improve health outcomes. This helps create a more balanced and equitable healthcare system, reducing disparities in access and quality of care.