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Risk Adjustment FAQs

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February 12, 2021

What Is Risk Adjustment?

Risk adjustment is an annual process that is used to appropriately compensate health plans for the costs associated with taking on members with chronic health conditions.

With risk adjustment, if your health plan serves a higher than average percentage of chronically ill patients, it will receive risk adjusted payments. If it has fewer than average members with chronic medical conditions, it may be required to make payments to the plan.

The key to successful risk adjustment, therefore, is to capture the plan’s full disease burden with accurate data and full documentation.

Why is Risk Adjustment Needed?

Payers that serve Medicare Advantage beneficiaries are paid a monthly, per-member payment in exchange for accepting the full responsibility (risk) for their enrollees’ healthcare costs.

Until 2011, when the Affordable Care Act (ACA) prohibited health plans from denying coverage to members with pre-existing conditions, many payers were able to mitigate their risk by attracting healthy members and avoiding those with chronic conditions. This meant that it may have been more difficult for individuals with chronic conditions to acquire health insurance coverage. These individuals may have then been uninsured and not had sufficient access to medical care.

Risk adjustment levels the playing field so that payers are appropriately compensated for taking on high risk patients. This increases access to healthcare for all individuals. Providers are also appropriately compensated for accurate reporting of their patients’ conditions and treatment plans. In addition, the fully capitated model under Medicare Advantage encourages payers and providers to offer their members more preventive and appropriate care.

The risk adjustment process is also relevant to the public health insurance exchange and some state Medicaid programs.

How Does Risk Adjustment Work?

Risk adjustment starts with gathering statistics—including patient demographics, diagnoses and professional encounter data. The data is used to assign each member in the plan a risk score.

Risk scores are based on members’ active chronic medical conditions and the additional Medicare-approved services they require. Medical diagnoses are grouped into categories of conditions that share similar cost patterns, such as diabetes with complications, diabetes without complications, multiple sclerosis and congenital abnormalities. These are called Hierarchical Condition Categories (HCCs).

All chronic illness diagnoses map to an HCC. A seriously ill patient can be included in multiple HCCs.

Healthcare providers need to document — or redocument — each patient’s active health conditions annually, using the appropriate codes from the list of International Classification of Diseases (ICD-10-CM). In addition to ICD-10-CM codes, providers need to include specific information in each health record to support the existence of the condition and the prescribed treatment plan. A diagnosis, even if it’s a chronic condition, will not be carried over into the next year’s record.

During the risk adjustment process, HCCs are each assigned a Risk Adjustment Factor (RAF). CMS uses RAFs to predict ongoing care costs for the following year and adjust capitated payments to the health plan.

What is a Successful Risk Adjustment Program?

Risk adjustment is only as good as the data a plan receives from the hospitals and provider practices that care for their members. However, the health plan is in charge of ensuring that the data they receive is both comprehensive and accurate. There are several steps a plan can take to enhance its risk adjustment program:

  • Great communication and outreach: Providers are healthcare professionals, not data scientists. They need to know exactly what information you need from them, where their charts are missing data and where they can make improvements. Effective and frequent communication helps improve your provider relationships. You can also help providers by doing outreach to your members to encourage them to make their annual wellness visits so their health status can be documented. In some cases, this may involve offering in-home assessments.
  • A strong medical record retrieval program: When you work with a company that has a broad medical record retrieval network, you increase your chances of receiving the data you need quickly and efficiently. Having HIM professionals in the field means they can locate, review and retrieve the data you need and increase the number of records you receive without disturbing providers. Ciox is embedded in over 17,000 provider offices including both inpatient and outpatient settings. In addition, Ciox has direct connections with electronic medical record systems and can retrieve medical records with minimal provider involvement.
  • The right technology: Your risk adjustment program can benefit from a data platform with the capability to store all your data, identify and extract specific data from structured and unstructured records, and perform calculations. With the right data and technology, you can manage data for specific populations, select members to monitor, identify members with a high probability of serious undocumented health conditions and missing diagnoses, and automate record retrieval. Today’s advanced risk adjustment software helps you complete your risk adjustment process more efficiently, improve decision making for revenue risk mitigation, and meet submission deadlines with the data that meets all CMS requirements. This includes Ciox’s 2LR technology.

If you have questions about risk adjustment and would like to learn how you can enhance your own program, the experts at Ciox are here to help. We are a trusted partner for over 120 health plans and continue to innovate to bring you the most advanced health information management solutions.

Learn more about modern-day risk adjustment reimbursement.

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