financial optimization
Understanding the Differences Between Risk Adjustment Programs
Betty Stump, MHA, RHIT, CPC, CDIP
I’ve spent a good portion of the last 10 years of my professional career working directly and indirectly with risk adjustment programs. What has become apparent over that time is there are varying levels of understanding among payers, providers, and vendors alike about the nuances between risk adjustment models. With that in mind, I’m hoping to outline differences and similarities across the three main models: CMS, HHS and Medicaid. It's complex, often confusing, and much broader than a single post, so we’ll start with some of the higher-level comparisons before moving into the details. But first, a quick overview of risk adjustment as a concept.
Risk adjustment is a fundamental part of value-based care. These programs play a crucial role in maintaining the stability and fairness of the healthcare system by ensuring that plans and providers are adequately compensated for the risk profiles of their enrollees.
However, each of these programs has its own strengths and weaknesses. In the weeks to come, we’ll take a closer look at each program, the external forces that can impact risk adjustment processes and programs, and what steps payers and providers can take to ensure optimal risk adjustment performance.
What Is Risk Adjustment?
Healthcare for approximately 110 million Americans is provided by the U.S. government through value-based care programs like Medicare, Medicaid, and the ACA exchange. These programs rely on a system called risk adjustment, a financial tool for estimating the cost to provide care to a covered population. The calculations and variables for risk adjustment are determined as follows:- A mathematical average for the cost of care for a person based on age and other demographics is established.
- To standardize the measure of disease burden across geographic locations and demographic cohorts, a mathematical value known as a risk adjustment factor (RAF) is determined for each patient based on their various conditions. The sicker a patient is, the higher their RAF score—and the higher the RAF, the more costly the care.
Medicare Advantage (CMS-HCC model)
Medicare Advantage (MA) plans, also known as Part C, are offered by private insurers and provide Medicare benefits to enrollees. The risk adjustment program for MA is designed to ensure health plans (payers) are compensated based on demographic characteristics and health status of their members. This program uses the CMS-Hierarchical Condition Categories (HCC) model to derive a RAF that accounts for diagnoses and demographic factors. The goal is to more accurately predict healthcare costs and ensure that plans serving sicker populations receive higher payments to fund appropriate patient care. The CMS-HCC model is specifically designed to address conditions found in a geriatric population, though there are eligible patients who receive Medicare benefits due to disability rather than age. The CMS-HCC model is updated annually, and proposed and actual program updates are published on a public website.HHS ACA
The risk adjustment program under the ACA is designed to ensure plans covering sicker individuals are adequately compensated, as well as to mitigate the effects of adverse selection by transferring funds from plans with lower-risk enrollees to those with higher-risk enrollees. This program uses the HHS-HCC model, which is similar to the CMS-HCC model but tailored to individual and small group markets. The HHS-HCC model specifically addresses age-appropriate populations, including all ages and obstetrical-specific conditions not seen in the Medicare populations.Medicaid
Medicaid risk adjustment programs vary significantly between states, reflecting the diverse populations and healthcare needs they serve. These programs often use state-specific models, such as CDPS/MedicaidRx, CRG, ACG, ERG, and DxCG. Medicaid risk adjustment is typically prospective, meaning issuers know their risk scores in advance. The primary goal is to ensure fair payment to providers based on the health status of Medicaid beneficiaries, promoting equitable access to care.Key Differences
| Model Used | Primary Scope | Payment Mechanism | |
|---|---|---|---|
| Medicare Advantage | CMS-HCC | Elderly and disabled individuals | Capitated payments based on risk scores |
| HHS ACA | HHS-HCC | Individual and small group markets | Funds transfers between plans to balance risk |
| Medicaid | State-specific models (e.g., CDPS/MedicaidRx, CRG) | Low-income individuals, with variations by state | Prospective payments based on predicted costs |
Betty Stump, MHA, RHIT, CPC, CDIP
Betty serves as a senior solutions consultant for Edifecs, a Cotiviti business, focused on supporting customers seeking to incorporate technology solutions to solve the complexity of risk adjustment capture and reporting. Bringing more than 40 years’ experience in healthcare to her role, she holds numerous credentials in health information, coding, and clinical documentation integrity, and has a master’s degree in healthcare administration.
