Unlocking Revenue and Quality Care: How Accurate Risk Adjustment Drives Success in Medicare Advantage

Since the 1980s, Medicare-eligible individuals have had the choice between the traditional fee-for-service plan, where the federal government pays healthcare providers a set fee for each service, and Medicare Advantage (MA), where the government pays private health plans a fixed amount for each enrollee. Today, over half of all Medicare beneficiaries are enrolled in Medicare Advantage plans.

However, paying rates that did not account for health status has historically incentivized plans to attract lower-cost individuals while avoiding those with more healthcare needs. This led to the federal government overpaying for MA enrollees relative to their actual costs in traditional Medicare. To address this imbalance, Medicare began adjusting its payments to private plans in 2004 based on the health status of enrollees. For example, a plan would receive a higher “risk-adjusted” payment for a member with conditions like diabetes or heart disease compared to a similar individual without these conditions.

Recently, Medicare Risk Adjustment has been the focus of considerable criticism, much of it deserved. However, detractors don’t recognize the legitimate policy objectives of the risk adjustment program. Prior to the roll out of the risk adjustment policy in 2004 to 2006, Medicare Advantage premiums were based on the AAPCC (Adjusted Average Per Capita Cost) which based premiums on age, sex, and county of residence, but without regard to health status. The problem with this rate setting methodology is that it didn’t consider the high cost of those beneficiaries who had multiple chronic conditions , relative to their peers in age/sex/location. As a result, health plans found these high-cost individuals less attractive, since they received the same premium for both sick, high-cost members and healthy, low-cost members. Because of this inadequate payment methodology, many chronically ill beneficiaries, who arguably had the most to gain from managed care, were kept out of Medicare Advantage plans. The payment system was unsustainable, and perversely disincentivized plans from caring for the sickest members.

The introduction of the Hierarchical Condition Category (HCC) coding system was a step in the right direction. It allowed health plans to receive higher payments for enrolling sicker, higher-cost members, which is a sound policy objective. However, the implementation has not been without challenges. Two key issues have been the source of most of the criticisms. First, some health plans have been accused of using aggressive and / or fraudulent coding to increase individuals’ HCC scores and profit from increased payment inappropriately. Second, most health plans have not adequately demonstrated that they have responded to the sicker members’ health needs and increased their spending to improve care for these chronically ill patients.

Coding health conditions has some inherent challenges, as there is often some judgment required, and healthcare providers may reasonably disagree on the proper coding for certain conditions. The significant financial incentives for higher HCC codes, coupled with the fact that health plans or their vendors are responsible for the coding, create a natural bias toward higher codes—akin to the fox guarding the chicken coop.

Several solutions could help address these issues. More standardization, or requiring specific data to document high-cost health conditions, and enforcing penalties for fraudulent coding are clearly solutions. Another potential solution could be to require a 2nd concurring opinion for some condition, or to provide a safe harbor for codes obtained through a concurring 2nd opinion from an independent provider. As an added benefit, this solution would also provide evidence of increased care for members with high HCC codes, which addresses the second issue by confirming the need to pay health plans higher premiums for sicker members to fund them to provide more care for these members. CMS and the OIG have repeatedly analyzed claims data to show a lack of evidence of care for a large proportion of these members. This had led to the justified criticism that health plans have used high HCC codes, regardless of their accuracy, to make more money without any effort to use that additional premium for its intended purpose – to provide more and better care for sicker members.

ReferWell believes that both of these challenges can be effectively addressed through its Care Access Complete Year-Round Program. This program, specifically designed to enhance risk adjustment performance, focuses on accurately capturing and coding member health information throughout the year. By proactively scheduling members for in-office or in-home assessments, the program not only improves documentation but also elevates the quality of care provided.

A key component of this program is the seamless scheduling of follow-up visits to specialists after risk adjustment assessments. This step is crucial for validating higher coding and creating opportunities to provide “evidence of care.” By ensuring that members receive timely and appropriate specialist care, health plans can meet policy objectives while improving compliance and demonstrating a genuine commitment to enhancing the health of their most vulnerable members.

In summary, while the mandate for risk adjustment visits has sparked controversy, ReferWell’s Year-Round Program offers a “win-win” solution for health plans, CMS, and patients. By facilitating continuous care and accurate coding, the program helps ensure that members receive a care plan tailored to their chronic conditions, confirming initial diagnoses through specialist input and validating the HCC coding decisions.

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