Navigating the New Horizons: Understanding Medicare Part C Risk Adjustment Model Changes

In the ever-evolving healthcare landscape, understanding the intricacies of Medicare's financial models is paramount for medical practices. The Medicare Part C Risk Adjustment Model, a pivotal mechanism in determining payments for Medicare Advantage plans, has undergone significant updates. With the Centers for Medicare & Medicaid Services (CMS) rolling out changes starting in the calendar year (CY) 2024 and continuing into CY 2025, it's crucial for healthcare providers and medical practices to grasp the essence of these modifications and prepare for their impact.

What is the Medicare Part C Risk Adjustment Model?

At its core, the Medicare Part C Risk Adjustment Model is a tool used by CMS to allocate payments to Medicare Advantage plans based on their enrollees' health status and demographic characteristics. This model ensures that plans receive appropriate compensation for the care of higher-risk (i.e., sicker) beneficiaries, promoting equitable care across the board. Risk adjustment models are essential in preventing plans from cherry-picking only healthy individuals and ensuring they are incentivized to care for all, regardless of health status.

CMS finalized an updated version of the Part C Risk Adjustment Model in the CY 2024 Rate Announcement, marking the beginning of a three-year phase-in period for this new model, referred to as the 2024 CMS-HCC model. The updates introduce several technical enhancements to improve the model's predictive accuracy. These include:

• Transitioning to the International Classification of Diseases (ICD)-10 classification system from the ICD-9 system for more current and detailed diagnosis coding.
• Updating the underlying Fee-For-Service (FFS) data years to 2018 diagnoses and 2019 expenditures, providing a more recent snapshot of healthcare costs and conditions.
• Adjusting the "denominator year" to refine how average per capita predicted expenditures are calculated, enhancing the creation of relative factors in the model.
• Applying focused revisions on conditions with higher coding variation to ensure more accurate risk score calculations.

For CY 2025, CMS proposes to continue the phase-in by blending 67 percent of the risk score calculated using the updated 2024 model with 33 percent of the risk score calculated using the 2020 model. Furthermore, CMS is exploring a more refined methodology for the Fee-For-Service (FFS) normalization factor to more accurately reflect the impacts of the COVID-19 pandemic without omitting data years. This factor is crucial as it adjusts risk scores to account for anticipated growth in the average FFS risk score over time.

These changes are more than just administrative adjustments; they carry significant implications for medical practices, especially those serving a large number of Medicare Advantage enrollees. Here's what medical practices need to know:

• Coding Precision and Updates: The shift to ICD-10 requires practices to ensure their coding processes are up-to-date and precise. Accurate coding is crucial to ensure proper risk score calculation and reimbursement.
• Data-Driven Decision Making: With the model using more recent data, practices must align their patient management strategies accordingly. Understanding the recent health trends and expenditure patterns can guide more informed care and operational decisions.
• Preparation for Financial Impact: The phase-in approach means that changes in reimbursements may be gradual, but practices should prepare for the financial implications. Analyzing the potential impact on revenue and adjusting financial planning and forecasting methods is advisable.
• Adaptation to New Norms: Including a refined FFS normalization factor, especially in light of COVID-19, signals a move towards more dynamic models that can adapt to unforeseen global health crises. Practices should stay informed and flexible, ready to adjust to these evolving models.

Preparing for the Changes

To navigate these changes successfully, medical practices should consider several preparatory steps:

1. Enhance Coding Practices: Invest in training and resources to ensure coding accuracy and compliance with the ICD-10 system.

2. Analyze Financial Impacts: Conduct financial analyses to understand how the phased changes may affect your practice's revenue and operations.

3. Stay Informed: Keep abreast of CMS announcements and guidance to ensure your practice is aligned with the latest model updates and requirements.

4. Leverage Technology: Utilize health IT systems and analytics tools to effectively manage and analyze patient data, aiding in precise risk score calculation and care management.

Here's the thing: the updates to the Medicare Part C Risk Adjustment Model signify a move towards more accurate, data-driven payment methodologies that reflect the evolving healthcare landscape. By understanding these changes and preparing accordingly, medical practices can ensure they continue to provide high-quality care to their patients while navigating the financial complexities of Medicare Advantage reimbursement. The journey through these new horizons requires diligence, adaptation, and a proactive healthcare management and operations approach.

Please share your thoughts with us. Chirpy Bird has been supporting practices' MIPS activities and coaching providers on MIPS strategies for years, and we'd love to help you navigate the changes and forge a path.