Federal Attempts to Rein In Risk Adjustment Overpayments

ZeOmega’s blog series on risk adjustment looks at where we’ve been, what we’re facing today, what’s on the horizon, and how to best prepare. Over the next several blogs, our ZeOmega risk adjustment solution experts will provide a forecast of regulatory changes and guidance on ensuring risk payment accuracy in both business and clinical operations.

The topics we’ll be covering in this series are:

1. Brief overview and history of the Risk Adjustment (RA) program.
2. The results of RA policy and how it’s led to gamification of chronic condition coding.
3. The value of risk-adjusted data across your organization.
4. How overpayments in risk adjustment threaten the Medicare Trust Fund solvency.
5. Recent federal actions and the next steps to control overpayments.
6. Strategy and platform pivots required to move forward successfully in risk adjustment.
7. ZeOmega’s expert tips and how the Jiva Risk Adjustment Navigator meets the evolving RA

As we have covered in our ongoing series, risk adjustment is a crucial mechanism in the healthcare industry that aims to ensure fair and accurate payments to health insurance plans based on the health status of their enrolled members. However, over the years, concerns have arisen regarding overpayments and non-compliant coding practices within the risk adjustment system. In response to these challenges, federal authorities have taken significant steps to address the issue and mitigate the financial burden on both payers and consumers. In this blog, we will discuss the recent federal actions taken to reduce risk adjustment overpayments and combat fraud.

Strengthening Risk Adjustment Models

One of the key areas of focus for federal authorities has been the refinement and improvement of risk adjustment models. By continuously analyzing historical data and incorporating more accurate predictors of health risks, the Centers for Medicare and Medicaid Services (CMS) have been working to ensure that payments to health plans align more closely with the actual healthcare needs of their members.

Over the years, risk adjustment models have evolved based on retrospective data analysis. Each year the actual claims spend in Fee-For-Service (FFS) populations are compared to both the anticipated costs and coding trends in managed care. Because coding of chronic conditions is incentivized in risk adjustment, normalization adjustments are made to align models to FFS costs.

Additionally, actuarial studies are performed on specific condition categories resulting in recalibration of coefficient values, hierarchy, and diagnosis code mappings in updated model versions which affect risk score calculations. These enhanced risk adjustment models reduce the likelihood of overpayments and create a fairer reimbursement system.

Auditing and Validation Programs

To identify and prevent fraud in risk adjustment, federal agencies have implemented auditing and validation programs like Risk Adjustment Data Validation (RADV) in Medicare Advantage. These initiatives involve rigorous examination of health plan data and performance metrics to identify potential irregularities or suspicious patterns. Through audits, the authorities can identify and rectify any inaccuracies in the reported health conditions, ensuring that only valid and legitimate diagnoses are included in the risk adjustment calculations.

In a failed audit, plans can be fined once the sample findings are extrapolated to the population level. These fines can have a significant fiscal impact on an organization, not to mention increased scrutiny of future submission data. Some plans may even face federal charges if the findings provide evidence of a violation of Fraud, Waste and Abuse laws or the False Claims Act.

In March, an audit performed by the Office of the Inspector General (OIG) concluded that $566,476 of the $706,678 risk adjustment payments to one Medicare Advantage plan were overpayments based on a sample of the population. Extrapolating these findings further indicates that over the two years audited, the health plan received at least $6.5 million in unsubstantiated risk adjustment payments. There are countless other similar examples of overpayments and federal actions. Despite the massive financial penalties, the issue of overpayments persists and, in many cases, goes undetected, further straining the program solvency.

Enhanced Documentation and Compliance

Federal actions have emphasized the need for improved documentation and compliance measures within the risk adjustment process. Health plans are required to maintain thorough records of their members' health conditions and medical histories, ensuring that all diagnoses are adequately supported by medical evidence. Furthermore, stringent compliance standards have been put in place to ensure the accuracy and integrity of the information submitted for risk adjustment purposes.

Health plans should be self-auditing their charts to ensure that all submissions meet the minimum federal compliance criteria. Often the codes that pose the most threat of violation are those originating from chart reviews and Health Risk Assessments (HRA). For suspected conditions to truly be valid for risk adjustment submission, they must also be backed-up by clinical evidence originating from a risk adjustment allowable provider in the allowable care settings. Likewise, condition severity must be substantiated by clinical evidence in the medical chart to pass an audit.

Collaboration with Data Analytics and Technology

Federal agencies have recognized the potential of data analytics and technology in reducing risk adjustment overpayments. Just like health plans race towards the latest innovative technologies to increase their profits, federal overseers are also utilizing innovative solutions to detect anomalies that may indicate gamification. By leveraging advanced algorithms and machine learning techniques, authorities can identify discrepancies and outliers within the risk adjustment data more effectively. This collaboration between federal agencies and technology experts facilitates early detection of fraudulent practices and enhances the accuracy of risk adjustment calculations.

Healthcare Provider and Plan Education

Educating healthcare providers and health plan administrators about risk adjustment processes, requirements, and potential pitfalls is essential to combat overpayments. Federal actions include the development of educational resources and training programs aimed at increasing awareness and knowledge among industry stakeholders. By empowering providers and plan administrators with accurate information, the likelihood of unintentional errors or deliberate fraud can be significantly reduced.

Health plans should study and trend results of risk adjustment reconciliation data, submission rejection reasons, provider performance and coding procedures to identify providers or coders who could benefit from additional education. Incentive programs are also a useful tool for engaging providers and making the additional efforts of thoroughly capturing chronic conditions beneficial which can lead to more accurate risk scores across the population. Lastly, plans should promote organizational awareness of risk adjustment and its vital role in daily operations. This can be achieved through shared data, transparent reporting, and continuous training.

Possible Next Steps in Federal Action

In March 2023, MedPac’s report to congress specifically called out chart review and HRAs as main sources of inflated risk scores stating, “We find that nearly two-thirds of Medicare Advantage (MA) coding intensity could be due to the use of diagnoses from chart reviews and health risk assessments and that these two mechanisms are a primary factor driving coding differences among MA plans.” MedPac projects that overpayments will reach $23 billion this year if coding practices remain the same.

With this projection and the dire financial outlook for MA, a bill called the “No Upcode Act” has been introduced which if passed, would effectively eliminate the use of chart review and HRAs in risk adjustment. This bill has bipartisan sponsorship and was introduced shortly after the MedPac report and CMS’s release of the version 28 risk adjustment model which payer analysis projects will result in a 2.27% reduction in revenue. This bill also seeks to increase the data comparison set to two years and calls for coding adjustments to be established at the plan level. This debate over the use of chart review and HRA data is ongoing as payer lobbyists and federal agencies continue to navigate the impending solvency issue.

Reducing risk adjustment overpayments and noncompliant coding practices are critical priorities for federal authorities seeking to maintain the integrity and sustainability of the healthcare system. By implementing robust risk adjustment models, conducting thorough audits, emphasizing documentation and compliance, leveraging data analytics, and promoting education, federal actions have been fighting to reduce overpayments and combating fraudulent practices. These efforts ensure that health insurance payments align more closely with actual healthcare needs, benefiting both payers and consumers. Moving forward, continued collaboration and adaptation to evolving challenges will be crucial in maintaining an efficient and fair risk adjustment system.

Ask us how The Risk Adjustment Navigator can add to the value of Jiva, ZeOmega’s Healthcare Enterprise Management Platform.

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