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Risk Adjustment Factor

The Center for Medicare & Medicaid Services’ (CMS) Hierarchical Condition Category (HCC) risk adjustment model assigns a risk score, also called the Risk Adjustment Factor or RAF score, to each eligible beneficiary. A beneficiary’s RAF is based on health conditions the beneficiary may have (specifically, those that fall within a Hierarchical Condition Category, or HCC), as well as demographic factors such as Medicaid status (defined as having at least one month of Medicaid eligibility during the base year), gender, aged/disabled status, and whether a beneficiary lives in the community (i.e., beneficiaries who reside in the community or have been in an institution for fewer than 90 days) or in an institution (i.e., beneficiaries who have been in an institution for 90 days or longer).

The RAF is a relative measure of the probable costs to meet the healthcare needs of the individual beneficiary. For example, older individuals typically have a higher RAF than younger individuals; and, those individuals with a personal or family history of certain conditions may garner a higher RAF than individuals without such a history.

The RAF is used to adjust capitated payments for beneficiaries enrolled in Medicare Advantage (MA) plans and certain demonstration projects. Payment rates may vary based on a patient’s predicted level of risk (e.g., the expected cost to maintain that patient’s health). As such, payment depends on complete and accurate reporting of patient data.

CMS requires that a qualified healthcare provider identify all conditions that may fall within an HCC at least once, each calendar year. Documentation in the medical record must support the presence of the condition and indicate the provider’s assessment and plan for management of the condition. Incorrect or non-specific diagnoses (or patient demographic information) can affect both patient outcomes and reimbursement for the care of that patient, moving forward.

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