How Health Plan Executives Can Win in Risk Adjustment

Dean Stephens
December 6, 2016

As the healthcare industry continues to shift from volume-based to value-based reimbursement, health plans are moving to change the way they do business. Recognizing that the cost of and incentives associated with traditional fee-for-service care are unsustainable, they are expanding their risk-based contracting efforts and seeking out more innovative ways to help providers deliver better care at a lower cost. For these payer organizations, accurate and timely risk adjustment is crucial to their success, as it has a direct impact on both plan revenue and care quality.

The stakes are high and will only continue to grow. In today’s highly regulated, competitive and increasingly quality-focused market, payers must look to technology for cost-effective ways to expand their risk adjustment strategies.

A Changing Marketplace

The Center for Medicare & Medicaid Services’ (CMS) goal to tie 50 percent of traditional fee-for-service Medicare payments to quality or value through alternative payment models – such as Accountable Care Organizations (ACO) – by the end of 2018 has drastically changed the Medicare Advantage insurance marketplace. Healthcare consulting firm Leavitt Partners predicts that by 2020, anywhere from 41 million to more than 176 million patients will be covered by a value-based contract delivered through an ACO, with MACRA payments responsible for 37 million of those. Similarly, the passage of the Affordable Care Act (ACA) has touched off a dramatic shift toward value-based care in the commercial health plan market.

Payers in both markets are responding to the increasing demand for higher quality and more affordable care by veering away from simply paying for treatment to supporting prevention and wellness efforts through value-based care and population health management initiatives. Goodbye fee-for-service care, hello value-based, risk-adjusted care.

With value-based reimbursement and alternative payment models quickly becoming industry mainstays, risk adjustment, which compensates payers based on the health of their member population, is now a key compensation mechanism for both Medicare Advantage and commercial exchange payers. An effective risk adjustment program is critical to ensuring that payers receive accurate reimbursements and transfer payments. It is also the key to providing the complete picture of member health needed to support better care delivery, generate cost savings and improve quality ratings.

Three Big Challenges of Risk Adjustment

Manual Processes

Traditional risk adjustment processes are highly manual and inefficient. Trained coders – either in-house, contracted, or outsourced (or some combination of the three) – must comb through reams of charts to analyze claims to find undocumented HCC codes and determine risk scores. It is an expensive and time-consuming process that hinders coder productivity and too often results in costly errors and missed codes. Adding to the burden is the likelihood that coding methodologies will continue to increase in sophistication, making the conversion from ICD-9 to ICD-10 seem like a walk in the park.

More Enrollees and More Data

There’s no doubt that both the Affordable Care Act and the aging baby boomer population have created a huge increase in the number of enrollees flowing into many health plan membership rolls. As of January 31, 2016, an estimated 12.7 million people signed up for insurance through the ACA, up from 7.3 million enrollees in 2014. In 2016, Medicare Advantage enrollment grew to nearly 19 million, continuing a steady increase of about one million people every year.

health plan risk adjustment

This flow of new members has benefited some private insurers. Between 2010 and 2014, revenues of private insurers increased 45 percent to approximately $375 billion, while operating profit increased 65 percent to $21 billion. However, this increase in covered lives also brings challenges. Medicare Advantage patients are older and may tend to need more care, increasing the complexity and cost of treatment. Many of the new exchange enrollees have never been insured, so information on their health status is unknown, making it difficult for payers to anticipate cost and correctly determine risk scores. Additionally, many are sicker and more expensive to treat than anticipated, while fewer younger, healthier people who would help offset that cost have signed up for coverage.

For example, in 2015, the Blue Cross Blue Shield Association (BCBSA) reported that the rates of diabetes in its overall membership jumped from 235 per 10,000 prior to 2014 to 456 per 10,000 after the ACA took effect. Rates of members with hepatitis C increased 140 percent, while those with HIV spiked to 242 percent. All in all, BCBS plans saw their average monthly spending per member increase from $436 to $569.

As the shift to value-based care continues and payers boost their risk-based contracting, coders employing manual risk adjustment processes will find it increasingly difficult to review the flood of patient records efficiently and accurately. They will simply not be able to keep up with the ever-expanding demand. Payers could respond by vastly expanding their coding staff – provided enough qualified people can be found – but it is an expensive proposition that may not be viable at a time when margins are thin and the need to keep costs down is acute. If not properly addressed, this combination of more members covered by value-based payment models, more patient files, and an overburdened coding staff relying on manual coding and chart review processes could have a ruinous effect on a plan’s risk adjustment performance; any increase in missed codes will lead to incorrect risk scores, which will in turn negatively affect quality scores and reimbursement rates.

Structured v. Unstructured Data

Health plans are experts at collecting and reviewing patient charts, but effective risk adjustment requires more detail than what claims data alone provides. According to IDC Health Insights, an estimated 80 percent of patient information is stored in unstructured formats6 such as free-text care plans, historical chart notes and specialist reports. This type of clinical data is critical for providing a more complete patient risk profile for increased risk score and revenue accuracy. However, retrieving the data can be difficult and can further slow the review process. Plans often must ask providers for the records – a process sometimes called a “chart chase” – who then send them via fax or through the mail. Or they send staff to the provider’s office to collect the data. It’s an inefficient, expensive process that exacerbates the already time-consuming, manual chart review. Without technology enablement, as patient volume grows, so will the problem.

So, what can payer organizations do to address these challenges? Download our latest white paper, “Winning in Risk Adjustment: A Guide for Health Plan Executives,” to learn what steps health plans can take to master risk adjustment through improved coding efficiency, productivity and accuracy.

Dean Stephens is the CEO of Talix.
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