Impacts of the 2018 Advanced Notice: What Health Plans Should Know

Shahyan Currimbhoy
February 14, 2017

On February 1, the Centers for Medicare & Medicaid Services published its 2018 Advance Notice laying out planned changes to Medicare Advantage (MA) and Part D payments and the risk adjustment methodology for CY 2018. Health plans and other stakeholders have 30 days to comment on the Advanced Notice. CMS will publish the Final 2018 Rate Announcement by Monday, April 3, 2017.

Main Highlights

The agency proposed a modest 0.25 percent baseline MA payment increase. With differences between fee-for-service and MA diagnosis coding factored in, the agency expects payers will see an average increase in revenue from last year of 2.75 percent.

For 2018, health plans will be relieved to see that CMS will not increase the amount of encounter data used to determine risk scores for plans, keeping it at the 2017 ratio of 25 percent EDS and 75 percent RAPS data rather than increasing to the 50/50 blend they originally planned. CMS had planned to base risk scores 100 percent on encounter data by 2020, but many insurers have expressed deep misgivings, saying the data is too inaccurate to base payments on. America’s Health Insurance Plans (AHIP) published a notification prior to the CMS Advanced Notice stating that if encounter data is solely used for payment, health plans will receive what effectively amounts to a rate cut.

Other Changes at a Glance

  • CMS-HCC Risk Adjustment Models for 2018: The 2017 model, released last year, remains in effect. There are no proposed model changes for medical HCC.
  • Adjustment for MA Coding Pattern Differences: CMS will implement an MA coding pattern difference adjustment of 5.91 percent for the payment year 2018.
  • Normalization Factors: CMS is updating the 2018 normalization factors as follows:
    - CMS-HCC model used for MA plans is 1.017
    - CMS-HCC model used for PACE organizations is 1.82
    - CMS-HCC ESRD functioning graft model is 1.082
    - CMS-HCC ESRD dialysis model is 1.080
    - RxHCC model is 1.005
  • CMS-RxHCC Risk Adjustment Models for 2018: For 2018, CMS is proposing to implement an updated version of the RxHCC risk adjustment model used to adjust direct subsidy payments for Part D. The Advanced Notice incorporates new coefficients for 2018. The 2018 model includes the following changes:
    - Update to reflect the 2018 benefit structure
    - Updates to the data years used to calibrate the model 

What Does This Mean for Health Plans?

Over the years, CMS has continually revised its risk score calculation to account for coding patterns, rising costs, population changes, model calibration and changing clinical procedures. All these modifications have resulted in lower MA reimbursements year over year for payers (and providers). To stay competitive, these organizations must look for new ideas and processes to help them achieve more accurate risk scores and the associated reimbursements.

Although the use of data analytics is on the rise, many plans and providers have not yet tapped into the valuable unstructured clinical data that resides in the guts of EHR applications. According to IDC Health Insights, an estimated 80 percent of patient information is stored in unstructured formats such as free-text care plans, historical chart notes and specialist reports. Risk-bearing payers and providers who can mine this previously hidden data will have a more comprehensive and accurate view of patient health that will lead to better care planning, more accurate risk scores and improved financial performance.

Despite the uncertainty ushered in by the new administration in Washington, D.C., it seems clear that value-based care—and risk adjustment—are here to stay. To succeed in this changing market, health plans must be able to deliver both high-quality and affordable care. There’s no doubt that the constantly transforming CMS regulations are creating a challenging environment. One important way plans can successfully meet these challenges is by instituting an accurate risk adjustment program that leverages an unstructured data analytics solution. This cutting-edge technology increases coding productivity and accuracy so organizations can improve quality ratings and realize more accurate reimbursements or transfer payments while staying true to their mission of delivering better care and improved member health. 

To learn how Talix can help you meet your risk adjustment coding challenges, contact us at

Shahyan Currimbhoy is the SVP of Product Management & Engineering at Talix.
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