Health Reform WK-EDGE CMS proposes to amend risk adjustment data validation calculation
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Friday, June 5, 2020

CMS proposes to amend risk adjustment data validation calculation

By Jeffrey H. Brochin, J.D.

Changes to risk adjustment data validation (RADV) program intended to provide health insurance issuers with a more stable and predictable regulatory framework.

HHS has issued a proposed rule which significantly revises provisions of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) pertaining to risk adjustment and RADV programs. In response to stakeholder feedback, CMS proposes to update the error rate calculation methodology by which CMS determines the adjustments to issuers’ previously calculated risk adjustment scores and transfers based on HHS-RADV results. The changes are intended to strengthen program integrity by reducing possible incentives for issuers to underreport diagnoses during initial risk adjustment data submission (Proposed rule, 85 FR 33595, June 2, 2020).

ACA and risk adjustment. The ACA established a permanent risk adjustment program to provide payments to health insurance issuers that attract higher-than-average risk populations, funded by payments from those that attract lower-than-average risk populations, thereby reducing incentives for issuers to avoid higher-risk enrollees. The ACA directed the Secretary of HHS to establish criteria and methods to be used in carrying out risk adjustment activities, such as determining the actuarial risk of enrollees in risk adjustment covered plans within a state market risk pool.

Submission of risk adjustment data. Pursuant to the data submission requirements for the HHS-operated risk adjustment program, each issuer is required to establish and maintain an External Data Gathering Environment (EDGE) server on which the issuer submits masked enrollee demographics, claims, and encounter diagnosis-level data in a format specified by HHS. Issuers must also execute software provided by HHS on their respective EDGE servers to generate summary reports, which HHS uses to calculate the enrollee-level risk score to determine the average plan liability risk scores for each state market risk pool, the individual issuers’ plan liability risk scores, and the transfer amounts by state market risk pool for the applicable benefit year.

Error estimation methodology. CMS has issued several proposed rules since 2011 to address the matter of data error in submissions from issuers. Recognizing that variation in provider documentation of enrollees’ health status across provider types and groups results in natural variation and validation errors, in the 2019 Payment Notice final rule, HHS adopted the current error rate calculation methodology to evaluate material statistical deviation in failure rates. However, the methodologies used for calculating data error have been the subject of much controversy and complaint from stakeholders who found that the methodologies resulted in inaccurate risk-adjustment payment rates. Accordingly, CMS has reviewed their methods and has proposed the new rule in order to refine the HHS-RADV error rate calculation.

Proposed rule changes. The rule proposes changes to two aspects of HHS–RADV: the error rate calculation and the application of HHS–RADV results. Beginning with the 2019 benefit year of HHS–RADV, the agency proposes to: (1) modify the hierarchical condition category (HCC) grouping methodology used in the error rate calculation; (2) refine the error rate calculation in cases where an outlier issuer is only slightly outside of the confidence interval for one or more HCC groups; and (3) modify the error rate calculation in cases where a negative error rate outlier issuer also has a negative failure rate. HHS proposes that beginning with the 2021 benefit year of HHS–RADV, to transition from the current prospective application of HHS– RADV results to an approach that would apply HHS–RADV results to the benefit year being audited. It is believed that the proposals specifically address stakeholder feedback received after the first payment year of HHS–RADV, and the proposals seek to further the integrity of the HHS–RADV program, while promoting fairness and improving the predictability of HHS–RADV.

HHS invites the public to submit comments on the proposed rule electronically via the website http://www.regulations.gov. (refer to file code CMS–9913–P) or by regular mail. To be assured consideration, comments must be received no later than 5 p.m. on July 2, 2020.

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