Strategies to Help Health Plans Prepare for Risk Adjustment, Star Ratings Changes

Darren Ghanayem

Multiple changes by CMS to calculate risk adjustment factor (RAF) and quality of care scores are forcing health plan leaders to significantly revise their plans or risk lower reimbursements from government-sponsored programs.

Some of the risk model and Star Ratings changes for those programs (Medicare, Marketplace and Medicaid) and others are still being fine-tuned so the direct financial impact cannot yet be accurately predicted. One thing, however, is clear: Health plans should be taking steps now to update their policies, procedures and technology. Doing so will help plans avoid any revenue disruptions that might have negative consequences for the plan, its members and providers.

To manage the wide variety of CMS modifications, plan leaders must take a thoughtful, strategic approach by focusing on three areas: updating their systems to incorporate the new risk model scores, revising the Star Ratings program to factor in new CMS criteria, and reconfiguring data collection systems to comply with CMS Health Equity Index requirements.

How the transition from V24 to V28 will affect risk adjustment calculations

CMS’s updates to RAF scores pose the biggest challenge because any errors by plans could have far-reaching consequences. CMS, which uses hierarchical condition category (HCC) coding to forecast future health costs, modified its risk adjustment model — from V24 to V28 — to ensure payments accurately reflect the cost of care. Some of the revisions included increasing the number of HCC categories (from 86 to 115), adding 268 diagnostic codes (ICD-10-CM codes), and eliminating 2,296 codes. Plans must update their systems and their data algorithms to reflect the changes, capture all qualified risk conditions, and fine tune their processes for the new model and rules being considered.

But there are also a few other factors at play. Many plans, for example, have built their own customized, internal risk models. Those models must be reconfigured to be consistent with V28. Also, V28 will be phased in over three years. This year, health plans will be reimbursed at a ratio of 67% for the V24 model and 33% for V28. In 2025, it flips to 67% for V28 and 33% for V24. In the third year, reimbursement will be paid using V28.

CMS expects lower risk scores as it transitions from V24 to V28, which in turn is expected to negatively impact plan revenue. How much will depend on the plan’s readiness and preparation. To navigate the changeover successfully, health plans should consider the following:

1. Understand how the different results were calculated for each model for the same member condition.
2. Ensure the new conditions identified in V28 are properly identified with your data and coding methodologies.
3. Ensure the data flow and processes are efficient so you have clean, actionable data that is summarized in a useful way.
4. Leverage modern technology to assist team members in focusing on members who have missing or anomalistic data identifiers

Streamlining risk-capture reporting

Even before the CMS changes to risk adjustment, health plans were already experiencing unexpected revenue decreases due to incomplete and inaccurate encounter information that reduces their risk profile. The changes will only make the compliance reporting process more complex.

The common root causes of inaccurate reporting are:

1. Lack of centralized governance to identify and remediate problems.
2. Insufficient knowledge and training for the reporting submission process.
3. Inefficient data quality control processes.
4. IT design that does not promote ease of report submission.

Organizations need a process in place to continually analyze and remediate common coding errors or oversights. A positive return can be realized by focusing strategic initiatives on the members, providers or codes with the greatest coding gaps.

CMS changes may lead to lower Star Ratings

Health plans, which are still reeling from the fallout of previous CMS revisions that led to lower Star Ratings, could see additional downward pressure on plan ratings. For the Star Year 2026 (plan year 2027), for example, CMS has recommended raising the hold harmless threshold to 5.0 Stars. It also suggested eliminating guardrails that are used to set cut points for non-Consumer Assessment of Healthcare Providers and Systems (CAHPS) measures.

Quality bonus payments tied to higher star ratings are a primary contributor to a plan’s revenue from the federal government. Plans earn around $45 per member per month in bonus payments (before rebates) when a plan has a 4.0 rating or higher. A dip in the rating translates into a material decline in revenue.

The challenge that plans face is that CMS is still working out the details on which measures will be dropped, which ones will be added, and how the changes will be calculated. Also, it will be some time before CMS offers training programs to plans and providers about the new reporting metrics and procedures. Fortunately, plans can preview their display measure data to monitor performance and help them prepare for future changes.

Meanwhile, here are two areas which plans should focus on to bolster plan performance and member care to protect or enhance Star Ratings:

• In preparation for lower revenue per member, double down on all supplemental services that are available to members. Are members using these services? Are the expected outcomes being achieved? Do the members understand how to engage with the services?
• Verify the recent importance of administrative measures and confirm that CAHPS and service have not deteriorated the focus on clinical measures, which will come back in future years with much higher weights.

Health equity is here to stay — and it will impact Star Ratings

To enhance care for enrollees with certain social risk factors, CMS has added a Health Equity Index (HEI) reward to its Stars program. The goal of the HEI initiative is to help achieve health equity for all Americans and reduce disparities among minority and underserved populations.

CMS will use HEI data collected this year and in 2025 to calculate 2027 Star Ratings, so plans must capture member data on every measure included in the HEI. CMS estimates, however, indicate that 75% of all 5.0-Star plan contracts could drop to 4.5 Stars when HEI data is included. To mitigate the risk of losing Star Ratings points, plans should consider the following:

1. Reviewing populations to identify which members qualify for inclusion in the HEI.
2. Creating control groups and evaluating each member intervention to ensure consistency across populations.
3. Updating member engagement strategies to ensure you are reaching at-risk members.

Each one of these changes — risk adjustment models, Star Ratings revisions and HEI reporting — affects the other. Plans should take a holistic approach to organizational updates and keep in mind these four points:

• Ensure the data's availability and accuracy are rendered in an actionable manner. Without that, the additional burdens of these changing methods will materially affect operations and revenue.

• Technology is your friend. Allocate sufficient capital to update automation and coding technologies to handle the increased volume of data and reporting requirements.

• Anticipate CMS’s next moves (visit their website to see all updates and new guidance) to help see how potential revisions will affect plan performance. Do not wait until new rules are officially announced to make changes.

• Continuously look for programs that are underperforming – either clinical programs or administrative programs – to cut costs, improve operational performance and enhance member care.

The future is now. Plan leaders must be proactive and not reactive to the upcoming changes. By taking aggressive action, leaders will be better positioned to improve plan performance and member care in today’s dynamic operating environment.

Darren Ghanayem is a managing director of AArete.