Risk adjustment

"Risk adjustment" refers to the adjustment of capitation payments (set amount per member per month, as opposed to fee-for-service payments), based on the diagnoses on file for the patients. Risk adjustment modifies payments to all insurers based on an expectation of what the patient's care will cost. A patient with type 2 diabetes and high blood pressure merits a higher set payment than a healthy patient, for example.

Why risk adjustment matters

The method that the Center for Medicare and Medicaid Services (CMS) uses to adjust payments to health plans for both commercial and Medicare plan members depends on accurately capturing claim diagnosis codes affiliated with an HCC (Hierarchical Condition Category). By risk adjusting plan payments, CMS can make accurate payments to health plans for enrollees with differences in expected medical costs.

How health risks are calculated

The formula uses variables that include age, gender, previous health history, and the presence of acute, status, and chronic conditions that are documented annually in a member's chart. This formula calculates a risk score for each plan member.

Review the Risk Adjustment Documentation Guide [PDF]

For commercial plan members

The risk score is calculated each year. The risk adjustment model is applied to calculate the individual's plan liability risk score (PLRS). The plan average PLRS is then used to calculate the transfer payments and charges between plans at a state level. Plans within a state determined to have a higher burden of disease will receive transfer payments from plans with a lesser burden of disease in that state.

Accurate capture of risk scores is essential to the proper transfer of funds between plans. If a plan's disease burden is not fully captured, its payment may be calculated inaccurately. This could result in an inaccurate payment transfer, or even a charge instead of a payment.

How we identify risk adjustment possibilities

Priority Health uses claim data analytics to find "suspect situations" - incorrect and missing diagnoses - that we should review for validation and potential correction. Once we identify these situations, we must review the charts for those members.

Remember: If it's not documented during an encounter, it didn't happen.

Why chart reviews help everyone

This scrutiny of medical records is a compliance measure to ensure our payments from CMS are based upon reliable and accurate records from physicians and facilities. Aside from payment inequities, undocumented, inaccurate or missed diagnoses can lead to members not receiving the quality of care they need to lead healthy lives.

Our review of records aims both to highlight missing diagnoses and to locate diagnoses that were added in error. Both should be sent to CMS to adjust their payments to us. Our goal is to capture the full burden, no more, no less, of illness each year for our members.

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