Risk-adjustment process calls for deep dive into data

Key Points

NOT ALL patients are created equal, which reinforces why risk adjustment is so critical to the solvency of Medicare Advantage plans. As the provisions of the Patient Protection and Affordable Care Act take effect, plans are evaluating best practices in risk adjustment for the upcoming health exchanges and accountable care organizations.

Many of the expected 35 million Americans who will shop for coverage starting in 2014 will come from the pool of the uninsured with unknown, unpredictable health needs. The newly insured population will have neglected health issues and will likely drive up risk propositions.

Risk adjustment in its current form does not provide an accurate assessment of a given covered population, according to respondents of MANAGED HEALTHCARE EXECUTIVE'S State of the Industry 2012 forecast survey. Nearly half of the 400 respondents believe risk adjustment provides a reasonable assessment but needs improvement, and an additional 40% say it's virtually impossible to achieve an accurate assessment.

MORE GRANULAR DATA NEEDED

In order for health plans to compete in the new health exchanges, they will need to walk a fine line by documenting chronic conditions without overinflating them, says John Steele, managing director of HealthScape Advisors. There's no doubt audits will be conducted to keep payers honest, but the emergence of electronic health records and the adoption of ICD-10 codes will help capture and audit information with more fidelity. Unfortunately, the target for ICD-10 compliance in October 2013 will not allow time for health plans to capitalize on the data for initial risk adjustment in the exchanges.

"In theory, ICD-10 helps risk adjustment because it allows for more granular coding that will be more predictive of costs," Steele says. "But the first few years will be thick as fog for risk adjustment as everyone figures out how to operate under these new parameters."

Risk adjustment is a necessary part of value-based purchasing, according to Mark Lutes, a partner in the Washington, D.C., office of EpsteinBeckerGreen who specializes in healthcare law.

"If you can't get the numbers right, no one will play," Lutes says. "The targets they are shooting for must be obtainable."

Until 2004, the only risk adjustment for Medicare Advantage plans was for the age and gender of a given population, says Robb Cohen, chief government affairs officer at XLHealth. The company operates the country's largest Medical Advantage Special Needs Plan, which serves seniors with diabetes and heart failure.