CMS Risk-Adjustment Factor: What is it?

By AGS Health

March 22, 2023

The Centers for Medicare and Medicaid Services (CMS) uses risk-adjustment factors to compute the payment for the beneficiaries enrolled in Medicare or Medicare Advantage plans. In doing so, CMS can make accurate payments for enrollees with differences in expected costs. Lastly, the risk adjustment allows CMS to use standardized bids as base payments to plans.

CMS risk adjusts certain plan payments, such as Part C payments made to:

  • Medicare Advantage (MA) plans
  • Program for All-Inclusive Care for the Elderly (PACE) organizations
  • Part D payments made to Part D sponsors
  • Medicare Advantage-Prescription Drug plans (MA-PDs)
  • Standalone Prescription Drug Plans (PDPs)

Medicare Advantage plans receive payment for each covered member from the Centers for Medicare and Medicaid Services (CMS). Risk adjustment changes plan payments to ensure accurate and adequate compensation for providing services and covering benefits. Payment is determined by a member’s risk score, which is based on a member’s predicted health status and demographic characteristics.

Medicare RA CMS Hierarchical Condition category (HCC) model is used to risk-adjust payment.

CMS Risk-Adjustment Factor

The high-level checklist below of plan requirements details information about risk-adjustment data collection, submission, reporting, and validation:

  • Ensure the accuracy and integrity of risk-adjustment data submitted to CMS. All diagnosis codes submitted must be documented in the medical record and the result of an in-person visit.
  • Implement procedures to ensure diagnoses are from acceptable data sources. The only acceptable data sources are:
    • Hospital inpatient facilities
    • Hospital outpatient facilities
    • Physicians
  • Submit the required data elements from acceptable data sources and according to coding guidelines.
  • Submit all required diagnosis codes for each beneficiary and submit unique diagnoses once during the risk-adjustment data reporting period. Submitters must filter diagnosis data to eliminate the submission of duplicate diagnosis clutters.
  • The plan sponsor determines if any diagnosis codes have been erroneously submitted, and the plan sponsor is responsible for deleting the submitted diagnosis codes as soon as possible.
  • Receive and reconcile CMS risk-adjustment reports promptly. Plan sponsors must track their submission and deletion of diagnosis codes continuously.
  • Once CMS calculates the final risk scores for a payment year, plan sponsors can only request a recalculation of payment upon discovering the submission of erroneous diagnosis codes that CMS used to calculate a final risk score for a previous payment year if it had a material impact on the final payment. Plan sponsors must inform CMS immediately upon such a finding.

Importance of RAF Score

Hierarchical condition category coding helps communicate patient complexity and portray a picture of the whole patient. In addition to helping predict healthcare resource utilization, RAF scores are used to risk-adjust quality and cost metrics. By accounting for differences in patient complexity, quality and cost performance can be more appropriately measured. It also helps to improve the quality of patient care. For example, higher scores can trigger the referral of a patient for case management in an accountable care organization (ACO) or help to identify candidates for chronic care management services.

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