By Jeffrey H. Brochin, J.D.
Final rule adopts changes to RADV error estimation methodology beginning with the 2019 benefit year for states where HHS operates the risk adjustment program, and also changes the benefit year to which HHS-RADV adjustments to risk scores and risk adjustment transfers would apply.
The U.S. Department of Health and Human Services (HHS) has issued a final rule, effective December 31, 2020, amending the agency’s HHS Risk Adjustment Data Validation (RADV) error estimation methodology that is used to calculate adjusted risk scores and risk adjustment transfers. The new policies seek to further the integrity of HHS–RADV, address stakeholder feedback, promote fairness, and improve the predictability of HHS–RADV adjustments (Final rule, 85 FR 76979, December 1, 2020).
Statutory background. The Patient Protection and Affordable Care Act (ACA) (P. L. 111–148) along with the Health Care and Education Reconciliation Act of 2010 (P. L. 111–152), established a permanent risk adjustment program to provide payments to health insurance issuers that attract higher-than-average risk populations (such as those with chronic conditions) funded by payments from those that attract lower-than-average risk populations, thereby reducing incentives for issuers to avoid higher-risk enrollees. The ACA directs the Secretary of HHS, in consultation with the states, 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.
The statute also provides that the Secretary may utilize criteria and methods similar to the ones utilized under Medicare Parts C or D. Consistent with section 1321(c)(1) of the ACA, the Secretary is responsible for operating the risk adjustment program on behalf of any state that elected not to do so. For the 2014 through 2016 benefit years, all states and the District of Columbia, except Massachusetts, participated in the HHS-operated risk adjustment program; and, since the 2017 benefit year, all states and the District of Columbia have participated in the HHS-operated risk adjustment program.
Utilization of EDGE server. Data submission requirements for the HHS-operated risk adjustment program are set forth at 45 CFR 153.700 through 153.740, and 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 scores 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.
Validating the data submission. HHS performs HHS–RADV to validate the accuracy of data submitted by issuers for the purposes of risk adjustment transfer calculations for states where HHS operates the risk adjustment program. The purpose of HHS–RADV is to ensure issuers are providing accurate and complete risk adjustment data to HHS, which is crucial to the purpose and proper functioning of the HHS-operated risk adjustment program. This process establishes uniform audit standards to ensure that actuarial risk is accurately and consistently measured, thereby strengthening the integrity of the HHS-operated risk adjustment program. HHS–RADV also ensures that issuers’ actual actuarial risk is reflected in risk adjustment transfers and that the HHS-operated program assesses charges to issuers with plans with lower-than average actuarial risk while making payments to issuers with plans with higher-than-average actuarial risk.
When HHS initially developed the HHS–RADV process in 2013, the agency sought the input of issuers, consumer advocates, providers, and other stakeholders, and the regulations that it subsequently promulgated reflected that input. However, more recent feedback has driven the need to further amend those early HHS–RADV processes.
HCC revision. Under the original methodology, almost every failure to validate a Hierarchical Condition Category (HCC) during HHS–RADV would have resulted in an adjustment to the issuer’s risk score and an accompanying adjustment to all transfers in the applicable state market risk pool. However, a 2018 rule amended error estimation methodology to only adjust issuers’ risk scores when an issuer’s failure rate was materially different from other issuers based on three HCC groupings (low, medium, and high), meaning, when an issuer was identified as a statistical outlier.
In February, 2020 HHS published a proposed rule outlining the benefit and payment parameters related to the risk adjustment program including several HHS–RADV proposals. These included updates to the diagnostic classifications and risk factors in the HHS risk adjustment models to reflect more recent claims data, as well as proposed amendments to the outlier identification process for HHS–RADV in cases where an issuer’s HCC count is low. HHS also proposed that beginning with the 2019 benefit year any issuer with fewer than 30 EDGE HCCs within an HCC failure rate group would not be determined to be an outlier, and, they proposed to make the 2019 benefit year a pilot year for the incorporation of risk adjustment prescription drug categories (RXCs) to allow additional time for HHS, issuers, and auditors to gain experience with validating RXCs.
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