Medicare Risk Adjustment Increases Quality,
Care Resources

Medicare Advantage (MA) plans face a constant need to improve the quality of patient care, maximize reimbursement to pay for that care, and control costs. Some plans are pursuing these goals through risk adjustment strategies designed to boost diagnosis code accuracy and enhance outreach, outcomes and revenues.

The potential impact of risk adjustment strategies becomes clear with two simple observations. First, many seniors enrolled in MA plans have a chronic disease. Second, roughly half of a plan’s risk-adjusted revenue is based on the reporting of chronic conditions under the Centers for Medicare & Medicaid Services’ (CMS’) model. In this context, MA plans must excel in diagnosing, routinely assessing and correctly documenting and coding those conditions, particularly as the costs of care continue to increase.

“Under the CMS model, adjusting for chronic conditions is in everyone’s best interest,” said Cindy Archer-Burton, vice president, Product Development, Clinical Assessment Solutions, Ingenix. “People have a higher quality of life if they are screened and treated before conditions progress. If those conditions are well-managed and people experience fewer costly, acute episodes, early intervention also lowers costs for all parties.”

Currently, 30 percent of coded chronic conditions are not appropriately supported and more than 40 percent of existing conditions are not reported. Dr. Shawn Merys, national medical director, Clinical Assessment Solutions, Ingenix, believes that MA plans “can improve the health and welfare of MA members from a clinical perspective with early detection and screening for chronic diseases. Also, improved documentation and coding enhances the financial resources that are available to manage the burden of chronic disease for those patients,” he said.

The evolution of the risk adjustment model

In 1999, CMS (then the Health Care Financing Administration) introduced the risk adjustment model – phased in over a five-year period – to satisfy provisions in the Balanced Budget Act of 1997. Provisions in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 also included risk adjustment as a key component of the bidding and payment processes for both the MA program and the prescription drug benefit.

The goal of the risk adjustment model was to increase payments to MA plans that care for the sickest beneficiaries.¹ Prior to introduction of the model, payments to MA plans were based solely on demographic information. Risk adjustment provides more accurate payments based on the beneficiary’s health status by paying more for less healthy enrollees and less for healthier enrollees.²

The model functions by categorizing disease classification codes into separate groups of clinically related codes (e.g., diabetes, cancer, ischemic heart disease, infections, etc.) that have similar cost implications. “In order to improve payment further, [we have] developed separate models for different populations who have different cost patterns than the general Medicare population,” according to CMS.³

Achieving the most accurate risk adjustment factor is not easy

The CMS model is driven by certain conditions which the agency has determined as requiring higher overall resource utilization. The financial resources available to a Medicare patient are dependent on that patient’s risk adjustment factor (RAF), which ideally should take into account all chronic conditions, complications and disease interactions, Archer-Burton explained. “That RAF serves as a multiplier for the standard payment rates,” she said.

One of the biggest misconceptions plans may have about risk adjustment is that the RAF scores assigned to their members is “good enough,” Merys remarked. “Even if your RAF score is good, that score may not truly represent the actual prevalence of chronic diseases in the MA population you manage. If that’s the case, you are missing a significant opportunity to have the appropriate financial resources necessary to manage the population,” he said.

Part of the problem, he noted, is that some MA plans’ members are not seen by a provider on a regular basis. For example, a diabetic patient diagnosed in 2006 may not be seen again until she has a broken arm in 2007.

The CMS requires that when a member is seen, he or she should be screened for chronic conditions. “At that time, the provider reviewing the chart will see the diabetes diagnosis and should validate through screening whether in fact that condition is being appropriately managed,” Archer-Burton said. “However, some patients are being seen and not always screened, and that’s where Ingenix can help.”

Because providers are strapped for time and see multiple patients each day, they sometimes may lose sight of “bigger picture” issues, such as identifying the burden of disease in the population they are managing, Merys explained. “Physicians need to examine population data about chronic conditions, which will help them focus not only on individual member screenings, but also on the entire population they manage. By doing so, they can better understand the true burden of disease in this population of often chronically ill members.”

Documentation and coding problems could lead to penalties

MA plans must accurately code, document, track and report on chronic conditions not only to provide appropriate care to their patients, but also to prepare for CMS audits. During a CMS audit, typically some charts are considered incomplete. Those codes that do not pass the audit result in CMS taking back the reimbursement it had provided for related services.

There are indications that CMS may be considering more severe penalties for failures to demon"

“CMS recently suggested that it would take back funds not just for those specific members found during the audit, but also might extrapolate those perceived insufficiencies across those codes for the whole plan, which could result in millions of dollars in penalties,” according to Archer-Burton, who said that although the agency has since backed down on that approach, stronger penalties are possible in the future.

Even plans that currently have decent audit results may struggle to keep up with CMS’ continuous changes to the risk adjustment model to make it more accurate and reflective of conditions and treatment programs. “These improvements certainly are welcome,” Archer-Burton said, “but they also require that plans spend time and money to monitor the changes and amend protocols accordingly.”

Since its full implementation several years ago, the risk-adjustment model has moved beyond its initial purpose as a reimbursement mechanism, she added. “Now there is a sensitivity not only to cost containment, but also to improved quality of care.”

She explained that plans not staying abreast of the CMS changes face multiple risks, because “they will not maximize the reimbursement potential, making it more difficult to provide members with appropriate care and a good level of service, and ultimately increasing the likelihood that members will shift to other plans.”

Risk adjustment tools improve MA plan efforts

To help MA plans identify where gaps exist in their risk adjustment strategies, Ingenix offers a suite of support services and tools that will help plans be appropriately reimbursed and enhance patient outcomes.

“We offer an end-to-end risk adjustment solution, from data capture and encounter submissions, to chart review and data and code loss detection and prevention,” Archer-Burton said. “We can help plans with system consultation, financial analytics and reporting, and outcomes measurement.” Also, because Ingenix recognizes that the physician is an integral part of the RAF equation, “we provide extensive clinical programs that offer provider outreach and training. We build intimacy with providers, and that delivers strong end results,” she remarked.

Ingenix outreach includes helping providers recognize opportunities for screening and preconditions within their preferred communications channels, such as portals or via e-mails. “Health plans are engaged and excited by the integration of clinical data into risk adjustment programs, because they know providers want to practice high-quality medicine and achieve improved outcomes for their patients,” Merys said. “The best way to mitigate a health plan’s financial risk is to screen for and identify chronic disease in their MA population proactively. By fully recognizing this burden of disease, it can then be addressed with case management, disease management and other medical affordability strategies.”

Ingenix helps providers identify that burden in the specific populations they manage. “We have a phenomenal data set to share with providers to help them understand the at-risk population, and compare their members to nationally recognized clinical benchmarks,” Merys said. “Are they proactively looking for these conditions? If not, we will partner with providers to integrate the clinical ‘gold standards’ used to identify them.”

Whether a plan needs to work on data capture, chart review, risk adjustment data submissions or revenue reconciliation, it can make substantial changes by establishing best practices up front.

“If you use sound risk adjustment strategies, you will have an enhanced revenue structure and the financial resources available to help manage the true burden of a member’s disease, so they have improved quality of life,” Merys concluded. “Getting it right enables MA plans to do the right thing both for their members and for their business.”

¹ “Medicare Managed Care Risk Adjustment Method Announced,” CMS Press Release (Jan. 15, 1999).
² CMS 2006 Risk Adjustment Data Basic Training for Medicare Advantage Ogranizations: Participant Guide.
³ Id.

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