Risk Adjustment and the Hierarchical Condition Categories Methodology
Risk Adjustment (RA) and Hierarchical Condition Category (HCC) coding is a payment model mandated by the Balanced Budget Act of 1997 (BBA) and implemented by the Centers for Medicare and Medicaid Services (CMS). The RA program allows CMS to pay plans for the risk of the beneficiaries they enroll, instead of an average amount for Medicare beneficiaries. By risk adjusting plan payments, CMS can make appropriate and accurate payments for enrollees with differences in expected costs. RA is used to make payments based on the health status and demographic characteristics of an enrollee. Risk scores measure individual beneficiaries’ relative risk, and they are used to adjust payments for each beneficiary’s expected expenditures. By risk adjusting plan bids, CMS can use standardized bids as base payments to plans.
Initiating the Affordable Care Act Risk Adjustment Program
Starting with coverage beginning in 2014, the Affordable Care Act (ACA) established a lasting RA program to minimize the negative effects of serving sick patients and help level the playing field between insurance companies where they are rewarded for providing high-quality, affordable coverage, not for offering plans designed to attract the healthy and avoid the sick. The RA program is intended to achieve this goal by mitigating the effect of risk selection on premiums by transferring premium revenue from plans with below-average actuarial risk to plans with above-average actuarial risk. Such a transfer mechanism is an essential component of the insurance market reforms implemented by the ACA. These market reforms include:
– Guaranteed issue/renewal. All non-grandfathered insurance coverage offered by health insurance issuers must be offered on a guaranteed issue basis. Health insurance issuers may not refuse to issue or renew coverage to any individual on the basis of their health status or prior use of health services.
– Adjusted community rating. A health insurance issuer may not charge an individual more for non-grandfathered individual or small group market coverage based on that individual’s health status or prior use of health services.
– Single risk pool. The single risk pool requirement directs an issuer to develop its market index rates for non-grandfathered insurance plans in the individual and small group markets based on the pooled essential health benefits claims experience of all of its enrollees in all non-grandfathered health plans in the applicable market in a State.
These three provisions mean that a health plan that enrolls individuals in poor health would not be able to charge higher premiums than one with healthier individuals. Without an RA mechanism, a health plan would gain a competitive advantage if it enrolled the healthy and avoided the sick. This could create an incentive for issuers to avoid offering plan designs that are particularly valuable to sicker individuals, thereby reducing the variety and quality of the coverage consumers have to choose from. The goal of the Affordable Care Act market reforms, and the goal of its risk adjustment
The goal of the Affordable Care Act market reforms and the goal of its risk adjustment program is to create a stable market in which health plan premiums will reflect the value of the coverage offered, including product features such as effective care delivery, and not risk selection.
Health Systems today need to find ways to accurately document and report patient’s entire disease burden. There are negative financial consequences for a lack of accurately tracking a patient’s medical history. When a provider under-reports that means the provider won’t get paid for the full cost it takes to keep patient’s healthy. Therefore, the medical data must tell the entire story of the patient’s encounter.
Under the RA program, providers are required to provide a face-to-face visit with each patient, each year, to identify the patient’s conditions thoroughly and link those to what the provider did to manage, evaluate, assess and/or treat each condition. In order to qualify for HCC reimbursement, the diagnosis must be directly monitored, evaluated, assessed and/or treated by the provider.
Staff Requirements for the Risk Adjustment Program
Most health system staff don’t fully understand the HCC methodology for RA. Traditional Diagnosis-Related Group (DRG) focused documentation programs may not always emphasize the entire disease burden, so physicians, coders, and clinical document improvement personnel may need additional training and updated policies to follow. It is also important to understand the two types of HCCs. They are CMS-HCC and the United States Department of Health and Human Services (HHS) HCCs. The guidelines that differentiate each other are:
Under both types of HCCs (CMS and HHS), HCCs are used with the following programs:
• Medicare Advantage Plans;
• Medicare Shared Savings ACO (expected cost);
• Value-Based Purchasing (expected cost/efficiency);
• Some Commercial ACOs/Shared Risk arrangements;
• Health Insurance Exchange Plans;
• States Where Medicare/Medicaid Dual Eligible are Managed Care; and
• Population Health/Risk Stratification/Cost Prediction.
The complexity of RA creates confusion for providers. Since approximately 80 percent of patient care occurs in the physician practice, they often have limited documentation of improvement practices as compared to a hospital’s inpatient setting. Doctor’s disparate systems and processes create difficulty for identifying a longitudinal care record that ultimately affects reimbursement.
Health Systems are continually seeking ways to accurately predict operating costs. The provider-sponsored health plans and/or providers with risk-based agreements need to predict costs to remain financially solvent. These providers are looking to risk stratify patient populations to help control costs and maximize reimbursements. This is why the RA scores are so important. The RA score is calculated using an actuarial tool that has been developed to predict the cost of healthcare for covered beneficiaries and enrollees. An RA score is determined by using a combination of demographic information such as the age and gender of the patient and whether it is community-based or institution based and if there is Medicaid disability and with disease information such as the HCC category, based on diagnoses reported, the interaction between certain disease categories and the disability status.
The RA score is calculated using an actuarial tool that has been developed to predict the cost of healthcare for covered beneficiaries and enrollees. An RA score is determined by using a combination of demographic information such as the age and gender of the patient and whether it is community-based or institution based and if there is Medicaid disability and with disease information such as the HCC category, based on diagnoses reported, the interaction between certain disease categories and the disability status.
The approved sources of data used to calculate the RA score diagnoses are from a valid provider (physicians, nurse practitioners and certified registered nurse anesthetist) with proper data collection methods. The data that makes up the HCC Classification System comes from 79 CMS-HCC categories.
Validating the Data Through Risk Adjustment Processing System (RAPS)
In order to evaluate a provider’s data, a risk adjustment model is run to calculate risk scores for all beneficiaries with available qualified data. In order for data to be included in the model run, organizations must meet three submission deadlines each year:
1. Once For Initial Risk Score – First Friday In September
2. Once For The Mid-Year Update – First Friday In March
3. Once For Final Reconciliation – January 31 After The Payment Year
It is important for plans to recognize the connection between the model runs and the dates of service. Plans should keep in mind that the model run timetable includes not only diagnosis information, but all statuses that affect risk adjustment. The Medicare risk adjustment model is prospective, which means that diagnoses reported in the prior year along with the demographic information will “predict” future costs and adjust payments accordingly.
Risk Adjustment Data Flow Process from Submission to Payment
Risk scores measure individual beneficiaries’ relative risk and are used to adjust payments for each beneficiary’s expected expenditures. In order to calculate individual risk scores, plans must submit data to RAPS based on beneficiary diagnoses. Accurate risk-adjusted payments rely on the diagnosis coding derived from the member’s medical record. This is why it is so important to capture the events of the entire patient encounter. The RA process flow is as follows:
• A physician documents a patient’s visit in their medical record;
• The physician’s office or hospital codes the claim from the medical record and submits the data to the payer;
• The payer converts and sends the diagnosis clusters in RAPS format or via direct data entry (DDE) to the Front-End Risk Adjustment System (FERAS) at least quarterly;
• The data goes to FERAS for processing where the file-level data, batch-level data, and first and last detail records are checked; and
• If any data are rejected, then data are reported on the FERAS Response Report.
The final submission of RA data is reconciled and is used to complete the implementation of payments, with CMS calculating final risk adjustment factors and beneficiary status based on complete data. CMS continues to allow a period (approximately 13 months after the data collection year) for submitting final RAPS data for the appropriate data collection period. Data not received or submitted by the initial submission deadline for a data collection period can be submitted by the final submission deadline (reconciliation). In addition to incorporating new RAPS and fee-for-service diagnoses, reconciliation takes into account necessary adjustments to institutional status and demographic data for enrollees.
Note: CMS reconciles risk-adjusted payments for a calendar year only one time. When submitting risk adjustment data for reconciliation, plans may submit corrected data that was previously submitted.
Providers should continually strive to improve their RA and HCC program processes by developing strategies to mitigate issues affecting accurate reporting. Reporting challenges exist because:
• The majority of patients are only seen in a physician office setting;
• Physician office notes are limited and specificity is not always identified;
• Physicians have to report what is treated, evaluated and monitored and might not be aware of what falls into each category;
• The physician’s report on a 1500 claim form which has space only for four diagnoses–electronically more can be reported; and
• Unspecified and symptom diagnoses are not considered as HCCs.
RA has become a lightning rod topic for ACOs and other providers despite not being a completely new subject. There is plenty of confusion about how RA and HCCs work and providers will uncover many opinions about how best to approach implementing the program. In any case, most data capture solutions that providers are pursuing today still have caveats. To best prepare for increased scrutiny, consider a multi-prong approach while being mindful of acceptable trade-offs. Utilizing a single source bolt-on technology by itself will not offer an overarching solution. The best technology tools will also use claims data rather than relying on electronic medical record data alone. One fact is indisputable: inaction will likely have negative operational and financial consequences for provider organizations.
Phil C. Solomon is the publisher of Revenue Cycle News, a healthcare business information blog and serves as the Vice President of Global Services for MiraMed, a healthcare revenue cycle outsourcing company. As an executive leader, he is responsible for creating and executing sales and marketing strategies which drive new business opportunities and client engagement. Phil has over 25 years experience consulting on a broad range of healthcare initiatives for revenue cycle optimization, where he has developed executable strategies for revenue enhancement, expense reduction, and clinical transformation.
Previously, he was the CEO of a Fast-Tech 50 healthcare technology firm, a principal executive at an INC Magazine’s top 500 Fastest Growing Private Companies in the U.S. and he has held various senior leadership positions with national and global business process outsourcing firms. He is an active member of the HFMA Georgia Chapter, has published over 250 articles about revenue cycle optimization and healthcare reform and is a featured speaker at industry educational events. You can reach him at firstname.lastname@example.org, 404-849-8065 or on Twitter @philcsolomon.
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