How CMS determines revenues for Medicare Advantage and Accountable Care Organizations

Insurance products are historically based on a set amount of revenue every month for each insured person. When dealing with government sponsored products such as Medicare Advantage (MA) and Accountable Care Organizations (ACO), this number is variable. Understanding how revenue is determined by CMS helps MA and ACO plans enhance their topline from the members they serve.
Prior to 2006 CMS used a flat premium rate for senior citizens when paying MA Plans. This meant that a 65 year old and an 85 year old would be compensated the same by CMS. Typically, a 65 year old will have significantly fewer chronic conditions than an 85 year old, thus lower medical costs to the insurance companies. HMOs responded by attempting to insure younger retirees. To changes this health plan behavior CMS moved to a Hierarchical Condition Coding (HCC) methodology for determining the appropriate premium revenue.
HCC methodology was introduced by CMS was created to align the HMO members chronic conditions to better reflect the actuarial risk associated with insuring the older members. HCC’s use a weighting methodology of the chronic conditions, then are combined with an Age-Gender factor to create a Risk Adjustment Factor or RAF Score. Total revenue for the MA and ACO plans is the sumo of the product of each members RAF score and the county base rate (CMS derived amounts).
The process seems simple and fair until we look at how HCC scores are derived. HCC scores come predominantly from primary care physicians diagnosing, charting and coding of their patient’s wellness conditions. The process is complicated further through the use of the ICD-10 codes that map to HCCs. Since physicians only need one ICD-10 code (why are is the patient there) to be paid CPT codes (work unit provided by physician). The net effect is a significant under-coding and likely management of the chronic conditions of the senior citizens and in most cases significant suboptimal revenue from CMS for the illness severity of the Medicare Advantage and ACO members.
The HCC program creates a good opportunity for Medicare Advantage and ACOs to succeed if they are able to align their patient’s revenue with the costs of care. To succeed under CMS’s rules requires an effective alignment between the practice and documentation of population healthcare principles by the PCPs with the timely outcomes reporting from the health plans. The real question that stumps Medicare Advantage Plans and ACOs is how to implement such a program?

Leave a comment

Your email address will not be published. Required fields are marked *