The Role of Risk Adjustment Models in Medicare and Medicaid Reimbursement

by  Jessica Hocker, CPC, CPB, CRC
Feb 21st, 2023

The Role of Risk Adjustment Models in Medicare and Medicaid Reimbursement

Risk adjustment models are used in Medicare and Medicaid programs to classify patients based on the severity of their health conditions and to determine the amount of reimbursement that healthcare providers will receive for treating Medicare and Medicaid patients. Scores are assigned to each patient based on the number and severity of conditions, as well as demographic characteristics, health status, and utilization of health care services and these scores help to ensure that plans are reimbursed appropriately for the care they provide to beneficiaries with higher health care needs.

• HHS-HCCs are overseen by the Department of Health and Human Services (HHS) and are based on a hierarchical structure, meaning that patients are classified into categories based on the most severe condition they have. For example, a patient with both diabetes and heart disease would be classified into the category for heart disease, since that is the more severe condition. These HCCs are used to determine the risk adjustment payments for some private health insurance plans and those offered through the Affordable Care Act (ACA) marketplace.
• CMS-HCCs are developed by the Centers for Medicare and Medicaid Services (CMS) and are also based on a hierarchical structure and are used in conjunction with HHS-HCCs to determine reimbursement levels.
• RX-HCCs are developed by CMS and are used to determine the amount of reimbursement that healthcare providers will receive for prescribing and dispensing prescription drugs to Medicare patients. RX-HCCs are based on a hierarchical structure and take into account the specific medications that a patient is taking, as well as any diagnoses or conditions that the medications are being used to treat.
• ESRD-HCCs are used in the Medicare End-Stage Renal Disease (ESRD) program. They are developed by CMS and are used to determine the amount of reimbursement that healthcare providers will receive for treating ESRD patients. ESRD-HCCs are based on a hierarchical structure and take into account the specific treatments and therapies that a patient is receiving, as well as any diagnoses or conditions that are related to their ESRD.

Medicaid risk adjustment models vary by state in the US. Some states use their own models, while others use a model developed by CMS. CMS currently offers two options for risk adjustment for Medicaid managed care plans: the CMS-HCC model and the Chronic Illness and Disability Payment System (CDPS) model. The following are just a few of the models used in statewide Medicaid programs.

• CDPS: This risk adjustment model is used in the Medicaid program in many states to classify patients based on the severity of their health conditions. It overseen by the University of California San Diego and is used to determine the amount of reimbursement that healthcare providers will receive for treating Medicaid patients.
• Johns Hopkins Adjusted Clinical Group (ACG): This risk adjustment model is used in the Medicaid program in several states to classify patients based on the severity of their health conditions. It is developed by Johns Hopkins University and is used to determine the amount of reimbursement that healthcare providers will receive for treating Medicaid patients.
• MARA: This risk adjustment model is used in the Medicaid program in some states to classify patients based on the severity of their health conditions. It is developed by Milliman and is used to determine the amount of reimbursement that healthcare providers will receive for treating Medicaid patients.

Each of the aforementioned Medicaid models take into account both diagnoses and procedures, and each is used to adjust payment rates for healthcare providers based on the complexity of the care they provide. Some states may use one of these models, while others may use a different model that is specific to the state. Not all states publicly disclose the models they use, but more information may be obtained by checking each state’s Medicaid website, or by contacting each state’s Medicaid agency directly.