How risk adjustment accuracy drives RAF score and CFO performance

The Risk Adjustment Factor (RAF) for Medicare Advantage (MA) or ACO beneficiaries has two components: demographics and clinical conditions. This post covers the latter where risk-bearing entities can affect the outcome. 

Why RAF score accuracy is a multi-faceted financial priority for MA plans and ACOs 

There is a clinical purpose of getting this right. A complete profile of each beneficiary supports proper triage and classification, which improves outcomes and secures appropriate reimbursement for the interventions and treatment patients need. Better outcomes ultimately lower cost. Still, this discussion focuses on the revenue and cost side of coding clinical conditions properly.

Risk adjustment coding example: calculating the value of an HCC 

The simplest way to value an HCC is to multiply its score by the relevant MA county benchmark. Benchmarks vary widely, so I generally use $1,000 to keep the math simple. That figure is conservatively low for most counties. It also absorbs risk score normalization and the complications of how revenue flows through the bid process, so it avoids overestimating. Of course, you could apply your own numbers for a more exact calculation, but I prefer the simple version, knowing it probably underestimates the actual value. Diabetes, a very common chronic condition, has a score of 0.166. Multiplied by $1,000, that is $166 PMPM in revenue, almost $2,000 per year for one code on one beneficiary.

A health plan keeps this entire amount; it flows through to the bottom line. A downstream risk partner, such as a provider group, multiplies it by the target MLR or pool factor in its agreement. If you take 85% of the risk, that share flows through to the surplus calculation. In the example above, it is still almost $1,700 for the year for one code on one beneficiary. So, you can see how much is at stake here. Those dollars help pay for the doctor visits, labs, drugs and average hospitalizations of someone with that condition.  

Risk adjustment documentation and coding: confirming codes and recapturing HCCs every year 

Properly documenting ICD-10 diagnosis codes in the chart protects against future audits, but the code must also be submitted via a claim from an appropriate source, such as a doctor’s office visit. To confirm CMS accepted the code, check the MAO-004 files that CMS provides to the submitting MA health plan. They show which codes will be included in the RAF calculation for the calendar year following the date of service. ACOs use the CCLFs (Claim and Claim Line Feeds) that will include the risk adjustment qualifying diagnoses by claim. In both cases, it’s critical to remember that the RAF resets each calendar year, so every condition must be documented again every year. As you can tell from the earlier calculation, even a chronic condition like diabetes, which does not have the highest score, can create a large financial gap if not followed up consistently and submitted to CMS in an eligible fashion.

Prospective review and HCC coding tools: improving risk capture before the visit 

Every organization needs a strategy and process to recapture appropriate chronic conditions year after year, and to identify other potential diagnoses that may exist or develop by mining all available medical, pharmacy and social determinants of health data. These should be highlighted for the clinical team before the visit so they can treat and code as appropriate conditions they might not have  otherwise considered. It is near impossible for one person to review all relevant information, especially for complicated patients. Technology like AI that leverages clinical knowledge is critical to help physicians and other personnel identify treatment and diagnosis opportunities they would otherwise miss. The clinician has the only say in confirming and documenting conditions. A wider and deeper view of the patient’s condition helps them make their best medical decisions, benefits the patient and supports a complete diagnostic picture and resulting reimbursement.

What CFOs should consider when investing in risk adjustment software 

When considering where to invest, CFOs should count all program costs: the technology and the net administrative cost. Net administrative cost is what you currently spend that new technology and processes can eliminate, minus the cost of any new protocols they create. The benefit on the medical cost side depends heavily on how each entity leverages the more complete medical profile of its patients. The revenue or risk-sharing pool side offers a clear and direct calculation, which gives a simple, if one-dimensional, ROI. Because HCCs must be re-established every year, comprehensive programs that make complete and proper coding and documentation as simple and frictionless as possible for clinicians are worth considerable investment. The timing on the revenue or pool side lags: work done today pays off next year. Proper investment still benefits the top and bottom line. It only takes time on the cash flow side. Plus, having the information documented provides better overall care now, which is the overarching purpose.