Risk adjustment

Program updates related to COVID-19: We're monitoring the new Coronavirus disease—COVID-19—and its impact to make sure we provide our members with the care they need, when they need it, while supporting our providers. This includes how it will impact our risk-based contracts, Risk Adjustment and incentive programs. For the most up-to-date information, including program deadlines, reference our page on program updates related to COVID-19.

What is risk adjustment? 

Risk adjustment is a a modern technology that accounts for known and/or discovered health data elements to level-set comparisons of wellness among members. As defined by the Centers for Medicare and Medicaid Services (CMS), risk adjustment predicts the future health care expenditures of individuals based on diagnoses and demographics. Risk adjustment modifies payments to all insurers based on an expectation of what the patient's care will cost. For example, a patient with type 2 diabetes and high blood pressure merits a higher set payment than a healthy patient, for example.

Watch Risk adjustment: An overview for providers.

Why does risk adjustment matter?

Health plans like Priority Health create internal risk adjustment programs to help monitor the patient population, improve quality of care, increase provider engagement and increase accuracy and completeness of data submissions in order to achieve more accurate risk adjustment factor scores. 

Who benefits from risk adjustment? 

In addition to helping Priority Health receive proper reimbursement and lower the cost of care for our members, risk adjustment and accurate condition capture has many benefits for you and your patients. 


  • Receive a treatment plan for their diagnoses
  • Can participate in programs offered by Priority Health
  • Stay engaged in their health


  • Capture and understand their patients' full burden of illness to better manage health care outcomes
  • Earn incentive dollars through our PCP Incentive Program (PIP) and Advanced Health Assessment (AHA) programs

Priority Health

  • Receives proper reimbursement from CMS to cover the costs derived from the conditions of the patient
  • Can offer enhanced benefits by lowering the cost of care

How health risks are calculated

The health risk 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.

Complete, accurate and timely submission of encounter/claims data is essential to capture chronic and acute conditions. 

  • Diagnostic sources: CMS will only consider diagnoses from inpatient, outpatient, hospital and physician data. All other data is excluded.
  • Demographics: Information such as age, gender, geographic region, Original Medicare entitlement, disability and Medicaid status impact risk scores. 

General risk adjustment methodology

  1. Providers submit claims with diagnosis codes
  2. Diagnosis codes are used to determine beneficiary risk scores
  3. Risk scores determine risk-adjusted reimbursement or payment

Hierarchical Condition Categories (HCCs)

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.

Learn more about proper documentation and coding by reviewing our Risk Adjustment Documentation Guide [PDF]  

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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