Understanding the Six Most Important Concepts in Medicare Risk Adjustment

What is Medicare Risk Adjustment?

Risk adjustment is a methodology used by health insurance companies to convert the present health status of a patient to a specific number called a "risk score." It is a method used in calculating what to pay a healthcare provider based on a patient's prevailing health conditions. Risk adjustment is essential both for insurance companies and healthcare providers like hospitals. For insurance companies, the Risk Adjustment methodology helps calculate and ensure that insurance companies participating in programs like Medicare get paid for the care they provide to Medicare beneficiaries. The reimbursed amount is calculated based on the risk score of the covered patients. This makes Risk Adjustment frameworks necessary in every health plan.

For healthcare providers such as doctors and hospitals, the risk adjustment methodology also determines how much they are paid for the treatment they provide to Medicare beneficiaries. However, it is essential to note that Medicare Risk Adjustment is usually made based on two broad factors: the number of Medicare beneficiaries benefitting from the program vis-a-vis the risk scores of those beneficiaries. The second is that Medicare risk scores are calculated using a formula that considers different factors such as demographic details (age, gender, disability status, Medicaid eligibility and institutional status) and diagnosis details.

Hierarchical Condition Categories (HCCs) Coding Model

Understanding Hierarchical Condition Categories (HCC) is an excellent place to start when learning about Medicare Risk Adjustment, especially from the coding perspective.

What is HCC?

A Hierarchical Condition Categories (HCC) is value assigned to each of the diagnosis codes used in risk adjustment. This implies that HCC is a model used in Medicare to appoint a Risk Adjustment Factor to each Medicare beneficiary to determine the possible cost of their healthcare based on their medical condition. It is also used to measure the quality or impact of healthcare delivered by healthcare providers. In this regard, Hierarchical Condition Categories are a value-based system that calculates cost and measures quality.

The first step in Hierarchical Condition Category (HCC) Coding is to link a patient's diagnosis to a code from a list of codes. Here, the ICD-10-CM codes are used to categorize each patient's condition. Therefore, the code assigned to a patient is usually linked to specific diagnoses, and it indicates whether the individual's condition is acute or mild.

How is HCC used in Risk Adjustment?

HCC is also used by actuarial departments to help predict the next year's healthcare expenditures.

Risk Score/Risk Adjustment Factor (RAF)

What are Risk Scores in Medicare?

In the Medicare ecosystem, a Risk Adjustment Factor (RAF) is another term for a patient's risk score, and it is also referred to as the RAF score. A risk score is a numerical value a Medicare beneficiary or patient is assigned annually based on their demographics and diagnosis; this implies that a patient's risk score is determined through a framework that combines their demographics and the information in their HCC coding. The overseeing government agency determines the Risk Adjustment Factor of every Medicare beneficiary, and that agency resets the score every January.

How do insurance companies use Risk Scores?

As a Medicare beneficiary or patient, health insurance companies can then use your RAF score to predict likely healthcare costs in a given year. This is how Insurance companies determine patients who may have average medical costs over a given period and patients who may have higher healthcare utilization and, as a result, higher healthcare costs. Again, this highlights the importance of proper HCC Coding.

What are the crucial factors in determining risk scores?

It is important to note that even though RAF scores are given every year, whether or not a beneficiary will receive a higher or lower risk score will depend on their medical records and their average disease burden. The patient's risk score will decrease when a chronic condition is not captured. If new conditions not reported in the previous year are reported in a new year, it will increase the risk score. Lower risk scores usually represent a healthier population view, except when coding errors exist. This usually adversely affects the pay-out process and the overall quality of healthcare provided.

Risk Adjustment Payment Models

Risk adjustment is intended to adjust capitalized payment amounts to pay plans accurately for a group of beneficiaries, thereby increasing incentives for health plans to enrol all beneficiaries, regardless of health status. This reflects how an insurance company is paid for covering the healthcare needs of the member they insure.

Risk Adjustment Data Validation (RADV) Audit

Before you enrol in Medicare, you need to also understand the concept of Risk Adjustment Data Validation (RADV), which is an auditing system used by the Center for Medicare & Medicaid Services (CMS) to regain improper payments made to Medicare Advantage (MA) plans. CMS uses RADV audits by collecting medical records of Medicare beneficiaries for review to verify whether diagnoses reported for payments were accurate and corroborated in the beneficiary's medical records. Systems like the RADV makes it critical for healthcare providers to accurately report patient risk using the correct diagnosis codes and avoiding unsupported documentation in the beneficiary's medical record.

Clinical Documentation and Medical Coding

Clinical documentation is registering information about a patient's medical care process in a medical record. According to Healthcare Resource Group, clinical documentation is to be seen as the core of every patient encounter with every medical institution.

Risk adjustment coding professionals are responsible for identifying gaps in a Medicare beneficiary's clinical documentation and guiding healthcare providers to eliminate such gaps.

Healthcare providers and risk adjustment professionals need to work in sync to ensure quality, and thorough documentation of a patient's conditions, as this will ensure the production of accurate information that will support both risk adjustment payment and healthcare service quality.

Medical Coding for Risk Adjustment

The system of Medical Coding for Risk Adjustment involves the HCC model, which uses information and actionable data about patients to predict future healthcare costs. The origin of this model has two sources: the first is the CMS-HCC model, while the second is the HS-HCC model. However, both models bear several similarities, including their reliance on the patient's demographic attributes and health conditions.

Risk-adjusted payments are based on the effectiveness of healthcare providers in managing patients' data. As such, healthcare providers and Medicare beneficiaries must leverage fully integrated risk adjustment solutions to perfect the retrieval of medical records and clinical coding.