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CMS Announces Final Rule on 2024 Medicare Advantage Rate Change

On March 31, 2023, HHS announced their final rule on 2024 Medicare Advantage Rate Change which included significant changes to the Medicare Risk Adjustment Model (named Version 28). Here are the need-to-knows about the rule changes, what will impact primary care clinicians, how they can best prepare, and how the Elation community will be affected.

What has Changed, and When?  

The rate change includes an estimated 3.32% increase in payments to Medicare Advantage plans, as well as significant changes to the risk adjustment methodology. The rate change is a slight increase from the originally proposed 1.03% increase in the 2024 Advanced Notice, but markedly lower than 8% in FY2023. CMS has also updated MA risk adjustment methodology from Version 24 to Version 28 (V28), which will be rolled out over three years starting Jan 1, 2024.  

What is Risk Adjustment?

Risk adjustment is a statistical process that is used to reimburse Medicare Advantage plans for the cost of caring for sicker patients. Under the current system, plans are paid based on the health status of their enrollees, as measured by a risk score. The risk score is calculated using patient data adjusting by age, sex, dual-status, disability status, and chronic conditions. The higher the risk score, the more money the plan receives to take care of sicker patients.

What are the Changes to Risk Adjustment?

In V28, CMS has revised the Medicare Advantage Risk Adjustment methodology. CMS announced that the objective of the changes is to reduce the sensitivity of the model to coding variation between Medicare Advantage and Traditional Medicare FFS and to better reflect costs associated with various diseases, conditions, and demographics characteristics.

CMS made several key changes to the risk adjustment model in V28 that will have various downstream impacts. They are:

1. Updating the way in which Hierarchical Condition Categories (HCC) are categorized. HCC categorization is used to group similar diagnosis codes into one category based on condition. Prior to V28, HCC categorization is based upon the ICD-9 classification system. V28 is updated to be based on ICD-10.

2. Updating the model data from 2014/2015 to 2018/2019. The underlying data used in the model to index conditions against an average is built on using 2014 diagnosis codes and 2015 expenditures. V28 updates this data to use 2018 diagnoses and 2019 expenditures.

3. Removing a set of ICD10 codes from V28. Around 2,000 ICD10 that were previously used to calculate risk adjustment will no longer be risk-adjusting. This accounts for 23% of risk-adjusting codes included in V24. A subset of these codes were removed due to high variation in coding practices between MA and Traditional Medicare FFS.

How did CMS incorporate feedback from the Advanced Notice?

After the Advance Notice was published at the start of the year, there was major pushback from providers, provider groups, and plans on the removal of ~2,000 risk-adjusting codes. Initial estimates of the impact of this change indicated a reduction in revenue by 10 - 20% for provider groups with the anticipated, unintended consequence of impacting inner-city and rural clinics most heavily. Critics of the advanced notice believe that the removal of codes due to high variation in coding between MA and Traditional Medicare FFS fails to account for historical Traditional Medicare FFS under-coding compared to MA due to reimbursement not being benchmarked to risk in FFS.

The final rate adjustments incorporate some feedback from the public comments on the Advanced Notice. Specifically, the compromise CMS made in the final Rate Announcement is that the model will be phased in over three years (as opposed to being implemented at once next year). This means that, in 2024, 67% of risk adjustment reimbursement will be based upon V24 and 33% on V28.

What is the Impact of the Changes to Providers?

The impact of the risk adjustment changes will vary depending on the provider's patient population. Provider groups who have higher risk adjustment scores are anticipated to experience the greatest impact on reimbursement under V28.

Impact to Elation Customers

Over the next three years, Elation customers participating in Medicare Advantage contracts will need to navigate the changes associated with the risk adjustment model update. For those customers in risk-bearing contracts, this may mean planning for a direct impact to reimbursement. For clinicians and coders, this means understanding a new risk adjustment model to ensure patient risk is accurately assessed and coded. Ultimately, the true impact on a given provider group caused by these risk adjustment changes is dependent on (1) the plans they contract with and how those plans are impacted by these changes, (2) their population as the risk adjustment model changes impact individual diagnoses and HCCs differently and (3) their historical coding practices.

What Can Providers In Risk-Based Contracts Do to Prepare for the Changes?

Providers can prepare for the changes to risk adjustment by:

• Understanding the changes to the risk adjustment model: Providers should carefully review the changes to the risk adjustment model and understand how they will impact their patient population.

• Coding patients accurately: Providers should continue to code patients accurately and should not code more severe diagnoses unnecessarily in order to increase their payments.

• Working with their Medicare Advantage plans: Providers should work with their Medicare Advantage plans to understand how the changes to risk adjustment will impact their payments beginning in 2024.

The risk adjustment changes are significant and will have a major impact on Medicare Advantage providers. Providers who are prepared for the changes will be in a better position to succeed in this new environment.