Does your practice leadership team (and physicians) truly understand Medicare risk coding?
by Michael Jones
It’s the beginning of a new year, so you’ll be hearing a lot about Medicare risk coding and the importance of risk coding. You’ll most likely hear the same story from many different sources - beginning January 1, those patients with amputations suddenly have limbs grow back and patients with certain conditions no longer have those conditions. You as practice leaders and physicians are told by multiple sources about how important capturing appropriate condition coding for your patients is.
But do you truly understand why it’s so important to capture the right level of specificity in your claims to Medicare and Medicare Advantage plans? You are inundated with the “how”, but have you ever seen the “why”, other than it means more reimbursement for the health plans?
As a primer on what risk coding is, it is a statistical method that attempts to predict a person’s utilization and cost of healthcare services. Risk adjustment was initially introduced to Medicare Plus Choice, which later became Medicare Advantage, as part of the Balanced Budget Act of 1997. The goal of this move was to account for differences in cost based on demographic and health factors.
The first CMS-Hierarchical Condition Category (HCC) model was rolled out in 2004, which further accounted for beneficiaries living in an institutional setting and new Medicare age-ins.
Risk adjustment uses several factors, including age, sex, and Medicaid status, combined with demographic and disease characteristics, to estimate a beneficiary’s annual healthcare cost. Risk adjustment is also used by health plans to adjust benefit bids to CMS, and payments to health plans are based on the expected healthcare cost of their members.These CMS-HCC models are further used in one calendar year to predict costs for the following calendar year.
For an elementary look at reimbursement to health plans under the CMS-HCC model, assume that the baseline monthly payment to a health plan is $1,000. Patient 1 is a 65 year old male with no chronic conditions, which results in a risk score of 0.5. The monthly payment for Patient 1 would be $500. Patient 2 is a 78 year old female with both diabetes and congestive heart failure, which results in a risk score of 1.42. The monthly payment for Patient 2 would be $1,420.
The assumption in the above two cases is that utilization and cost of services follows the condition codes attached to those patients. So, Patient 1, who is younger and healthier, should theoretically be using services at a rate equal to or below $400, whereas Patient 2, based on her condition codes, should be using services at a rate at or below $1,420 per month.
In 2020, the average risk score for a non-dual eligible Medicare fee for service beneficiary was 0.949 whereas the average risk score for a dual beneficiary was 1.495, a 58% difference (carejourney.com).
At face value, higher risk scores result in higher payment from CMS to Medicare Advantage plans, where a fee for service model pays greater reimbursement for more services. The move toward value based care, in addition to many other things, is a way to better align both reimbursement and utilization, and proper risk coding is a key part of this.
In value based care agreements and in many health plan designed incentives, risk scores are capped at increasing by a certain percentage each year, usually 3%. Additionally, Medicare Advantage plans have Medical Loss Ratios (MLRs), which require that 85 cents of every dollar reimbursed go into direct patient care. In doing this, benefits are increased and premiums lowered, which benefits both the patient and the physician practice.
Why does all of this matter to you as a practice leader or physician?
You as a practice leader or physician can impact your performance in your incentive program by accurately attaching correct condition codes to your patients, year over year. Because there is no overarching reason to code to the highest levels of specificity for traditional Medicare beneficiaries not on a value based care model and because many patients are not utilizing services as frequently as expected, there is a natural variation between the expected and the actual risk scores of your patients.
As your practice matures and better understands the benefits of condition coding to all involved, increasing annual wellness visit rates and keeping the primary care physician at the center of the care model, preventive services and overall care for your patients become more predictable.
When patients see their primary care physician regularly, having both wellness visits and preventive screenings guided by that primary care team, it’s a win-win!
