CMS Addresses Risk Adjustment Methodology

It was great to see so many people attend the HHS-Operated Risk Adjustment Methodology Meeting in person last week at the Centers for Medicare & Medicaid Services (CMS) headquarters in Baltimore, MD.  My blog from the end of March, which can be accessed here, addressed many key points from the HHS-Operated Risk Adjustment Methodology white paper CMS published on March 24, 2016, in preparation for the March 31, 2016, meeting. The intent of the meeting was to discuss the white paper and for CMS to receive initial feedback from the public regarding it. As stated by CMS, “Today is the beginning of the discussion, not the end.”

At the March 31 meeting, the presentations and discussions throughout the day were engaging and welcoming to new ideas coming from participants. It was a forum that allowed for open dialogue and questions, which is exactly what the Health and Human Services (HHS) risk adjustment process needs at this point.  CMS answered questions submitted from in-person and remote participants. All questions and answers from the session will be posted on REGTAP in the coming weeks.  The questions asked spanned the spectrum from how CMS is going to ensure issuers cannot game the system to algorithm calculation adjustments. It was an insightful and interactive discussion between all participants. Donald Trump was even brought into the discussion at one point throughout the Q&A session.

The stabilization of the commercial market without the use of the underwriting process has been quite the struggle. CMS addressed the 2014 transfer payments that occurred and reconfirmed, as they did in the white paper, the risk adjustment process, inclusive of calculation and transfer payments, worked as it was intended. From this point forward, CMS is focused on ensuring the methodology utilized increasingly gets smarter each year.  Pretty much, the age-old idiom “practice makes perfect” stands true. CMS is using the data available to refine and “practice” new modeling methodologies to ensure a “perfect” process is in place to stabilize the commercial market. There were some fantastic modeling methodologies discussed.  The discussion around creating two different risk adjustment models, one for the individual market and one for the small group market, was one of the best options proposed. It became very evident from the 2014 results that the small group market thought process about purchasing health insurance is different than the individual market, and thus requires certain adjustments. For instance, the contract periods for a small group do not follow the same January 1 – December 31 time period as the individual market. Because of this different modeling, methodologies may need to be applied to account for the shorter time period. A lot of health plans conducted “early renewal” in 2013 for their small groups. In turn, the small group market experienced having risk-adjusted members the last quarter of 2014, which is not a good representation of the experience. The year 2015 will provide more accurate results in which to give a better perspective of the market.

The option to have the commercial market function on a prospective risk adjustment model is not a viable option due to the timing lag. It would inadvertently make the market less stable than it is now. The concurrent model currently used is the best option. The data utilized to create the normalization factors and coefficients will continue to get smarter as the years progress.

There is overwhelming support to include prescription drugs into the analytics and calculation for risk adjustment. Just as much support as this topic is receiving, there is also just as much concern, and rightfully so. It’s logical to have prescription drugs included in the risk adjustment model, but in reality, what does that really mean? It means, for certain prescription drugs, CMS will be able to relate that drug to a chronic condition, and, thus, that chronic condition Hierarchical Condition Category (HCC) factor can then be included into the plan-level risk score (PLRS) calculation. Again, makes complete sense. It’s a way to “close a gap” so many health plans strive to do on daily basis. Now think about the operational adjustments and questions that need answered in order for something like this to work:

• What chronic conditions are going to be included?
• Is there a clear definition for prescription drugs?
• How will the HHS Risk Adjustment Data Validation (H-RADV) audit have to change to account for prescription drug validations?

With further research and analysis, this is a process that, I believe, will come in time. CMS has already planted the seed they would start to introduce prescription drugs into the risk adjustment calculation slowly, starting with a relatively small drug class focusing on adults only. CMS has not begun looking at the child and infant risk adjustment models to understand the impact.

Risk adjustment is a hot topic in the industry.  It’s an extremely complex process with a lot of hidden nuances that need to be taken into consideration. Those in the healthcare industry today get to experience the great paradigm shift that has occurred. We are living and breathing it every day. Whether you are a health plan, Pharmacy Benefit Manager (PBM), physician, certified professional coder, or even a member, you are impacting the process of transforming the healthcare operations of the past to pave the way for a better healthcare experience in the future. It’s an exciting time in healthcare, and I, for one, am grateful to be able to assist clients through this difficult transformation of establishing operational processes embedded with risk adjustment best practices.

Resources:

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