Medicare Risk Adjustment
Medicare risk adjustment is the most widely used risk adjustment model and is connected to Medicare Advantage Organizations.
A Medicare Advantage Organization (MAO, formerly known as Part C) is a health insurance plan contracting with CMS to offer Medicare beneficiaries insurance that incorporates institutional and outpatient services as well as optional prescription benefits.
Typically, a person who is 65 years or older is eligible for Medicare benefits, but disabled persons are also eligible regardless of age. A beneficiary can decide whether to enroll in traditional Medicare Parts A and B or with an MAO. There are various scenarios that will determine when a person can and should enroll.
Risk (RAF) score calculation: Medicare risk adjustment uses the CMS-HCC crosswalk to calculate a member’s annual risk score based on chronic and severe acute conditions that are expected to impact healthcare costs long term. The RxHCC crosswalk is used if the beneficiary is also enrolled in a Part D (prescription drug) plan.
Like in other risk adjustment models, each HCC is a collection of similar diagnoses in one payment group. For example, unspecified pulmonary hypertension (I27.20), chronic diastolic heart failure (I50.32), and dilated cardiomyopathy (I42.0) map to the same HCC 85 in the CMS-HCC model even though they are coded differently in ICD-10-CM. No matter how many of a patient’s ICD-10-CM codes map to a CMS-HCC, the risk value (factor) for that category is added only once to a patient’s risk score, as the HCC calculator tool in Figure 3 shows. The three example codes in the top Diagnoses section all map to HCC 85, but the Calculator Results at the bottom add the HCC 85 risk factor only once.
Figure 3. HCC Calculator Showing Multiple Diagnoses Mapping to a Single HCC
Hierarchy elimination: Another area to consider is that some CMS-HCCs belong to “families” that are subject to hierarchy elimination. If providers report multiple conditions that map to a family in a single calendar year for a patient, only the HCC representing the most severe condition is used for risk score calculation.
The fragment of a CMS-HCC hierarchy list in Table 3 will help demonstrate. If an ICD-10-CM code submitted for a patient during a calendar year maps to an HCC shown in the first column, and diseases were also reported for that patient in any HCC listed in the last column of the same row, then all the HCCs in the last column are dropped, or not used in HCC risk score calculation. Only the HCC in the first column is calculated. For instance, if HCC 8 applies to a patient, then Medicare will not use HCCs 9, 10, 11, and 12 in the risk score calculation.
Table 3. CMS-HCC Hierarchy List Showing Which Disease Groups Drop When Multiple HCCs Apply to a Patient
Also keep in mind that the CMS-HCC model is additive. If a provider submits other diagnoses outside of a family at any time in a calendar year, Medicare also uses those diagnoses when calculating the HCC risk score. For instance, note how the Calculator Results section in Figure 4 shows multiple HCC scores added together (for HCCs 54, 57, and 19) and also lists when an HCC is not used for calculation (for instance, the score for HCC 55 is not included because HCC 54 takes precedence).
Figure 4. Example of Additive CMS-HCC Model, Adding Multiple HCC Scores Together
While this information about hierarchies is interesting to risk adjustment coders, these calculations and hierarchy groupings are performed by CMS. Official risk scores are reported to the MAO, but the health plan may run their own analysis to aid in predicting costs. Risk adjustment coders will rarely need to perform these calculations, but seeing how risk scores are calculated is helpful to fully grasp the need for accurate and complete diagnosis reporting.
Diagnosis documentation: CMS has strict criteria concerning the medical record documentation used for risk score calculation. Only records signed by approved provider types for services performed in approved locations can be used for diagnosis validation. While any healthcare provider with a National Provider Identifier (NPI) may submit claims for payment of services (FFS), only face-to-face encounters with approved specialty types are acceptable for abstracting diagnosis codes for risk score calculation.
Payment: Medicare risk adjustment is considered a prospective model. The current year’s demographics and diagnoses predict the following year’s payments.
While MAOs receive a per-member per-month (PMPM) capitation payment based on predicted risk scores, final payment from CMS based on actual risk scores could take up to two years. For example, in Table 4, notice the final payment for 2021 dates of service (DOS) will not occur until after the final submission of diagnosis codes in 2023.
Table 4. Comparison of DOS and Payment Adjustment Year in Medicare Risk Adjustment
||Payment Adjustment Year
|01/01/2020 to 12/31/2020
|01/01/2021 to 12/31/2021
|01/01/2021 to 12/31/2021
|01/01/2022 to 12/31/2022
|01/01/2022 to 12/31/2022
Table 4 is not all-inclusive of submission dates, but it puts into perspective why accurate and complete diagnosis coding is so important at the provider claim level. In other words, diagnoses the health plan received on a claim in 2021 can help predict future costs for its members and, when submitted to CMS early, will affect the PMPM payment received in 2022. Just because the plan has until Jan. 31, 2023, to submit 2021 diagnoses to CMS for final payment, that does not mean the plan should wait until then. Funds received via premiums and risk adjustment payments are used for member benefits and programs; the earlier the plan receives the funds, the earlier benefits can be distributed.