Risk Adjustment Overview

  • The Balanced Budget Act (BBA) of 1997 mandated the new change in CMS (Centers for Medicare and Medicaid Services) payment methodology.
  • Prior to the implementation of risk adjustment, reimbursement was based solely on demographic factors such as age, sex, Medicaid status, county of residence, etc. The CPT procedural codes were the primary key factor that drove CMS revenue.
  • Under Risk Adjustment (RA), CMS’s™ intent is to pay Medicare Health Plans and subsequently medical groups based on the patient’s health status (reimbursement is higher for sicker patients and lower for healthy patients). Risk adjustment has evolved from only using hospital inpatient and outpatient data to include physician data.
  • A complete diagnosis coding is the primary key factor, which drives the risk adjustment scores as well as the reimbursement by Medicare. CMS will no longer accept family codes as a risk adjustable code, if it is not coded to the highest level of specificity. Under this provision, any diagnosis codes that requires 4th or 5th digit and is only coded with three digits would be invalid and rejected (Note: this level of coding specificity has always been a requirement for standard fee-for-service Medicare).