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Risk Adjustment 101: Everything You Need To Know

Risk Adjustment basics
January 31, 2023

Nobody ever said risk adjustment is an easy topic to understand, but it is a key component of many health insurance plans. If you are interested in how these health plans work, it will be beneficial to have a working knowledge of risk adjustment. Here’s a quick breakdown of risk adjustment basics.

What Is Risk Adjustment?

At the most basic level, risk adjustment is a payment method that utilizes patient data from the previous year to forecast the cost of care for patients in the current year. A risk adjustment program will analyze patient demographics and past diagnoses to determine the amount health plans should be reimbursed for taking on high-risk patients who have higher costs of care.

There are currently two types of Risk Adjustment:

1. Prospective risk adjustment: Uses historical data to predict future costs.

  • Used by the Centers for Medicare & Medicaid Services (CMS) for the Medicare Advantage (MA) Program.

2. Concurrent/retrospective risk adjustment: Uses historical data to predict costs for the current period.

  • Used by the Department of Health & Human Services (HHS) for the Affordable Care Act (ACA) marketplace and used by most states that are using risk adjustment for Medicaid plans.

So, What Makes Risk Adjustment so Important?

Risk adjustment can help payer and provider organizations meet their members’ needs in a way that results in better patient experiences and health outcomes.

Prior to risk adjustment, some plans wanted to selectively enroll patients who were healthier since they wouldn’t be high-risk and have high costs of care. Risk adjustment, however, made it possible to compare beneficiaries to the average Medicare beneficiary, and as a result, plans could now be compensated for enrolling high-risk patients. This gave them a safety net and deterred plans from marketing only to the population’s healthier segments. As a result, today even high-risk patients get improved access to quality healthcare.

Who Really Benefits from Risk Adjustment?

Short answer: EVERYONE!

Health payers, providers, Accountable Care Organizations (ACOs), Direct Contracting Entities (DCEs), and patients all can benefit from an effective risk adjustment program.

Health payers: Reimbursed according to the patient’s risk score that is submitted to CMS.

Health providers: Having the right risk adjustment program in place not only ensures that health payers who take on high-risk patients are sufficiently reimbursed, but also that providers are compensated for submitting accurate reports of their patients’ health conditions. Risk scores for a patient are based on diagnoses and claims submitted by the provider.

Patients: Receive quality care even if they are high-risk.

How Does Risk Adjustment Really Work in Action?

1. Enrollee diagnoses are specified by ICD-10-CM guidelines to prospectively adjust capitation payments for a given enrollee based on the health status of the enrollee.

2. The health status of enrollees are determined through the diagnoses received. These come from chart reviews, inpatient or outpatient facility claims, or professional service claims. The claim must be from an internal medicine physician or a nurse practitioner. Diagnosis or claims from registered nurses are not acceptable in the risk adjustment process.

3. Once the health status documents are received, the plan codes them in-house or leverages a vendor and then submits them to CMS for development of the enrollee risk score.

4. Risk score is a factor-based estimate of their expected costs/plan payment.

5. Finally, the plan receives the risk-adjusted payment from CMS for the enrollee.

6. Provider organizations are compensated based on a capitation rate based on contractual agreements.

Finally, What Do You Need to Make Your Risk Adjustment Program Successful?

1. The right team: Whether internal or external, it’s important to have a team that can aggregate your plan’s data along with data from CMS and providers in one place. This team should accurately assess your program, identify areas of opportunity, and propose solutions to make the most of them.

2. The right tools: Your team must be able to generate an action plan that takes advantage of what you do well and should identify specific solutions and interventions at the member, provider, and plan levels to address any areas of unrealized opportunity. This will allow you to focus on the right interventions and avoid those that produce little to no impact on risk scores or patient outcomes.

3. The right technology: Your RA platform should have a well-designed UX and UI so anyone in your organization can easily interact with your data. It should also incorporate coding and programmatic data into your workflow so you can make real-time decisions. This will help you perform faster comparative analysis, supplement existing chase lists with new opportunities as they arise, and deliver more integrated care.

Have more questions about risk adjustment? Reach out to us at https://www.episource.com/contact