CMS in an advance notice released Monday indicated that it plans to move forward with a proposal to use more data from health care providers' encounters with patients to calculate risk-adjustment payments for Medicare Advantage (MA) plans.

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About MA's risk-adjustment model

CMS uses MA's risk-adjustment model, known as the CMS-HCC Risk Adjustment model, to determine payments for MA plans. Under the model, MA plans assign each beneficiary a risk score based on medical coding that reflects the beneficiary's medical condition. Beneficiaries with poorer health will have higher risk scores, while healthier beneficiaries will have lower risk scores. MA plans are given higher payments for beneficiaries with higher risk scores than they are for beneficiaries with lower risk scores.

In 2019, CMS finalized a proposal to phase in several changes to the MA risk-adjustment payment model, which the agency is required to do by 2022 under the 21st Century Cures Act. For instance, CMS said in 2020 it would begin implementing the Payment Condition Count model, which accounts for the total number of medical conditions a beneficiary has that qualify for the risk-adjustment model. Under that change, the agency will calculate 2020 risk-adjustment payments based on the sum of:

• 50% of the criteria under the new payment model; and
• 50% of the risk-adjustment model criteria the agency used to determine 2017 risk-adjustment payments.

CMS also finalized its proposal to incorporate more encounter and inpatient data into a beneficiary's risk score beginning in 2020. That data comes from information about beneficiaries that clinicians collect during their encounters with patients, Modern Healthcare reports.

To do so, CMS said it will base:

• 50% of a beneficiary's 2020 risk score on fee-for-service data, down from 75% in 2019; and
• 50% of the risk score on encounter data, up from 25% in 2019.

CMS says it will move forward with risk-adjustment changes for 2021

CMS in a fact sheet issued Monday said the agency will continue to phase in its planned changes to the MA risk-adjustment payment model for calendar year 2021.

CMS in the advanced notice proposed calculating 2021 risk-adjustment payments using the sum of:

• 75% of the risk-adjustment payment model criteria the agency used to determine 2020 risk-adjustment payments; and
• 25% of the risk-adjustment model criteria the agency used to determine 2017 risk-adjustment payments.

CMS also said it plans to move forward with incorporating more encounter and inpatient data into a beneficiary's risk score. To do so, CMS said it would base:

• 75% of beneficiary's 2021 risk score on encounter data; and
• 25% of a beneficiary's 2021 risk score on fee-for-service data.

CMS will accept public comments on the latest advance notice through March 6. The agency said it will finalize all changes to MA payments for 2021 in an annual rate announcement that it plans to release by April 7.

The debate over encounter data

Health insurers previously have raised concerns about CMS' increased use of encounter data to calculate risk-adjustment payments, claiming the data reduces payments and often is inaccurate and incomplete.

Noting similar concerns, the Government Accountability Office (GAO) in a 2017 report recommended that CMS use encounter data to calculate MA risk payments, but urged CMS to validate the data. GAO wrote, "To the extent that CMS is making payments based on data that have not been fully validated for completeness and accuracy, the soundness of billions of dollars in Medicare expenditures remains unsubstantiated."

According to FierceHealthcare, insurers likely will raise concerns about CMS' latest announcement, as they have with the agency's previous proposals to incorporate more encounter data into risk-adjustment calculations. 

But the Medicare Payment Advisory Commission has supported CMS' efforts to incorporate more encounter data into the risk-adjustment model, HealthCare Dive reports. The commission in a report issued to Congress in June 2019 said, "Detailed encounter data are the best vehicle for learning about how, and how much, care is provided to the one-third of Medicare beneficiaries who receive benefit through an MA plan" (Minemyer, FierceHealthcare, 1/6; Livingston, Modern Healthcare, 1/6; Muchmore, Healthcare Dive, 1/7; Morse, Healthcare Finance News, 1/7; CMS fact sheet, 1/6).