Risk Adjustment in Medicaid

Medicaid Risk Adjustment | Mile High Healthcare Analytics

Many people believe that risk adjustment started with Medicare Advantage in 2004, but actually Medicaid risk adjustment led the way, starting in Maryland and Minnesota in the late 1990’s and Colorado in 2000.

Current State of Medicaid Risk Adjustment

Today 36 states currently have risk-bearing contracts with managed care organizations (MCOs).

At least 23 states use a risk adjustment model to adjust payments to these MCOs. The state Medicaid programs use of risk adjustment is continuously evolving:

  • 13 states use CDPS (or a combined CDPS/MedicaidRx model)
  • 4 states use the Johns Hopkins ACG System
  • 1 state uses DxCG
  •  state uses CRGs
  • 1 state uses ERGs
  • 4 states use MedicaidRx alone (often as a transition strategy)

All the models except MedicaidRx use claims-based diagnosis codes and age/sex data. Some of the models count or include most diagnosis codes for risk assessment while others count primarily high cost and more likely valid and reliable codes. The fundamental difference between the models is the logic they apply to aggregate diagnosis codes into groups. Despite these differences, all models perform similarly in terms of overall predictive accuracy.

Next generation models are being developed that include EHR clinical data such as diagnostic test results. Some of the next gen models also include social risk factors for programs that serve many diverse populations. These models provide better estimates of the interactive effects of behavior and physical health issues.

Medicaid vs. Medicare Advantage Risk Scoring

Medicare Advantage assigns risk scores to individual members and pays for each member individually. The higher the risk score, the more money CMS (and the taxpayer) pays out to the health plans.

With Medicaid, most states pay at the plan level with a multi-year lag. With this payment methodology, a health plan’s risk score is determined by a historical cohort of members. Plan-level risk scores are then applied to a future population of enrollees in the same risk score strata. The group-level average risk score from the prior period is applied to a different group of enrollees in some future fiscal year. For example, risk scores determined in 2012 using 2011 claims history will be used to set health plan rates in 2014.

Health Benefit Exchanges typically assign risk scores to individual members, but use these scores to reconcile relative risk score at the plan level. Both Medicaid and Exchange scoring is budget neutral to the plan sponsor.

Medicaid Risk Adjustment Challenges

The biggest challenge to implementing any Medicaid risk adjustment model is data completeness and quality. Other common issues faced in assessing new risk adjustment models for Medicaid programs include;

  • The difficulty in simultaneously managing current and prospective models
  • Frequency/lags related to updating plan risk scores
  • Calibration and model updates

To ensure the highest quality data, states should work closely with health plans throughout the preparation and implementation phases. States should simulate results so there are no surprises or business disruptions in the implementation cycle (this also serves as an important validation step where data anomalies can be identified and remedied).

The diagnosis-based Medicaid states rely on encounter data and claims as the source of diagnosis codes. Risk score augmentation can be achieved through the submission of new encounter data. If a provider is willing to supply a new claim with a new stream of diagnosis codes, most states will accept this and replace a previously processed encounter record.

Risk adjustment for Medicaid is radically different than for Medicare Advantage. In both cases, provider education around the appropriate clinical documentation is key. Because of the historically based risk score calculations, it can take more time and effort to positively impact Medicaid risk scores. If you need help assessing the effectiveness of your Medicaid risk adjustment program, contact Mile High Healthcare Analytics at 720-446-7785 or mhh@healthcareanalytics.expert to learn about our Risk Adjustment Advisory Service.