How does risk adjustment impact revenue in value-based programs?

October 4th, 2017 / By Becky Pelov

Accurate reimbursement is key to managing the Medicaid population, which tends to be higher risk and lower margin. This is increasingly important as plans move toward value-based payment and ask providers to assume financial risk. 

For example, New York State sets premium payments for Medicaid members using the member risk score of a Managed Care Organization (MCO) and comparing it to MCOs in the same region and premium group. An MCO must accurately report the illness burden of their population to get the appropriate reimbursement for their members. Risk scores are calculated using encounter data submitted by MCOs to the state. Reviewing risk scores compared to other plans in the same regions and premium groups can show how MCOs are doing compared to their peers. 

It is not only important for an MCO to submit these encounters for all Medicaid members to the state in the appropriate format, but also for the encounters to be accepted by the state. The state returns edits when an encounter is rejected and provides information regarding what needs to be corrected. Plans must review these edits and resubmit these encounters to the state to ensure that they are being counted in their risk score calculation. Additionally, categories of service are used to assign an encounter as inpatient, outpatient or professional. It is most important that inpatient encounters are being appropriately assigned an inpatient status. An inpatient claim only requires one instance of a diagnosis code to assign an Aggregated Clinical Risk Group (ACRG3), compared to an outpatient or professional claim, which requires two instances. 

An MCO can help providers accurately and completely code all their encounters by incorporating these measures into their value-based programs. Providers are incented to assign an appropriate illness burden to their patient panel, since it translates into higher premiums. Incenting providers in value-based programs by incorporating accurate and complete coding can help to improve reporting and lead to more accurate risk scores. A potential issue is that even a large provider group can do a lot of work to ensure accurate and complete coding for their panel that has little impact on its risk score. Plans need to account for this in developing incentive structures for their value-based programs. 

An MCO should identify members that do not have any encounters in the current year.  These members are identified as non-users. A member that is a non-user currently receives a 0.000 as a risk score from the state, translating to $0 premium dollars for that member. If that user has just one encounter in the year, no matter which type, they will at least move to a healthy user state. This increases their risk score to somewhere between 0.0532 to 0.4698, depending on the premium group to which the member belongs. 

Another population to consider are known as chronic fall outs.  These are members who are identified with a chronic condition in one year, but not the next. This is likely a result of a patient not having their diagnosis recorded during a medical visit rather than no longer having a chronic condition. An MCO can reach out to members who have not seen their PCP and encourage them to visit their PCP, offer health screenings, or arrange home visits for this group of non-users. 

Members flagged as chronic fall outs or have a lower risk score or ACRG3 category from the previous year should be considered for chart reviews as there may be missing diagnoses on claims that prevent members from being categorized appropriately. An MCO that employs these strategies will help ensure that members are being seen and receiving quality care. This will lead to a more accurate illness burden measure resulting in proper reimbursement from the state.

Becky Pelov is a consultant with 3M Health Information Systems.


Read Donna Smith’s latest article on embracing risk adjustment.