Risk Adjusted Payment Models for Medicare Advantage – New Markets and Business Opportunities


In 2007 the Centers for Medicare & Medicaid Services (CMS) fully implemented its “HCC Risk-Adjustment Reimbursement” model for capitated Medicare Advantage (M.A.) plans.  This model was put in place to align member premiums with the condition of the individual member (i.e. M.A. plans would receive higher monthly premiums for a member with several chronic conditions than a healthy member).  So, how could health plans prove to CMS the condition of members through the prevalence of certain risk factors?

Two categories of companies have arose, both helping to solve this problem for the health plans, albeit from a very different approach:

Retrospective Chart Reviews:  Companies that pull patient charts from provider facilities and then perform clinical audit reviews to validate the presence of certain clinical codes.  Companies in this group include Leprechaun, Outcomes, The Coding Source, Health Risk Partners and others.

Prospective Medical Assessments:  Companies that actually go into the member’s home and spend time assessing the mental and physical health of the member.  This form of risk adjustment does not rely on reacting to episodes of care but rather using clinically validated surveying to prospectively identify existing conditions.  Companies in this group include Matrix Medical, Inspiris, Censeo and EMSI.

So, while it’s clear the incentive is for M.A. plans to maximize revenue by uncovering risk factors, CMS countered by announcing the Risk Adjustment Data Validation (RADV) pilot program in July of 2008 to audit M.A. plan’s risk adjusted payments more extensively.  The initial pilots found an average discrepancy rate of 35% which has lead to a system wide roll-out of RADV audits.  This now puts significant pressure on M.A. plans to ensure the HCC data submissions are accurate as plans are subject to a downward adjustment in risk scores and serious financial penalties if the audits show discrepancies.  For plans, it’s not about getting more or less risk adjusted reimbursement revenue; it’s about getting the right amount of revenue (Revenue Integrity).

So this leads us to a debate as to how M.A. plans can ensure data accuracy.  Is it more accurate and effective to utilize retrospective chart reviews for risk adjustment or utilize prospective in-person medical assessments to survey the health of the member or is it a blend of the two?  CFO’s of M.A. plans across the country are wrestling with this very same question as they evaluate their revenue integrity and compliance.

Let us know what you think and have a great week.

Judd Stevens
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