What is the CMS HCC Risk Adjustment Model?

The CMS, or Centers for Medicare & Medicaid Services, developed the HCC Risk Adjustment Model to determine Medicare Advantage (MA) plan payments, based on the expected healthcare costs of plan enrolees. HCC stands for Hierarchical Condition Categories, which are groups of medical conditions that share similar expected costs of treatment.

Since its inception in 2004, the CMS HCC Risk Adjustment Model assigns each MA enrolee a risk score based on their demographic information – such as age and gender – their medical conditions, and the severity of those conditions. The risk score is calculated by first assigning HCCs to each enrolee based on their medical diagnoses, then applying a weight to each HCC based on the expected cost of treatment. These weights are then added up to determine the enrolees’ overall risk score.

The CMS HCC Risk Adjustment Model is designed to account for differences in the health status and expected costs of care among MA enrolees, and to ensure that MA plans are adequately compensated for the medical needs of their enrolees. The risk adjustment methodology is used to adjust payments made to MA plans based on the enrolee’s risk score, with higher risk scores resulting in higher payments to the MA plan.

The CMS HCC Risk Adjustment Model is updated annually to reflect changes in the prevalence and costs of medical conditions, as well as changes in the coding and classification systems used to identify medical diagnoses.

What is a RAF score? 

The Risk Adjustment Factor (RAF) score is a measure used to adjust the payment for healthcare services based on the health status and expected medical costs of the patient. The RAF score is typically used in the context of Medicare Advantage (MA) plans, which are a type of health insurance offered by private companies that contract with Medicare to provide Medicare benefits to eligible individuals.

The RAF score is calculated using a formula that takes into account the patient’s demographic information, such as age and gender, as well as their medical conditions and the severity of those conditions. The formula assigns a weight to each medical condition based on its expected cost of treatment. The weights are then added up to determine the patient’s overall RAF score.

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So a patient has a RAF of 1.5 may have a 0.6 from demographics, a 0.3 for diabetes, and 0.6 from COPD. 

The RAF score is used to adjust the payment made by Medicare to the MA plan for each patient. Patients with higher RAF scores are considered more expensive to treat, and the MA plan will receive a higher payment to cover the expected costs of care. This helps to ensure that MA plans are adequately compensated for the medical needs of their patients, and that patients with more complex health conditions receive appropriate care.

How do HCCs relate to it?

Each year, Medicare calculates an amount of money that will be paid per member per month (PMPM).  This same base rate is paid out for every patient, regardless of what services were done.  This base rate is then multiplied by the patient’s RAF score so that more money is payed out to take care of patients with a high RAF (sicker patients) than those with a low RAF (healthier patients).  

If a CMS patient has a high RAF, they he/she is expected to get extensive medical care, clinicians who enrol these are reimbursed more than those who have low RAFs. The additional reimbursement amounts for patients who qualify will not be paid to organizations that do not properly or completely document HCC codes as incorrectly documented codes do not add to the RAF score.

To know more about HCC coding and how to improve it, you can refer to our blog on ‘How to improve HCC coding and avoid risks.’

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