Risk Adjustment in the Medicare ACO Shared Savings Program

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1 Risk Adjustment in the Medicare ACO Shared Savings Program Presented by: John Kautter Presented at: AcademyHealth Conference Baltimore, MD June 23-25, 2013 RTI International is a trade name of Research Triangle Institute.

2 Introduction Role of risk adjustment in the ACO Shared Savings Program CMS-HCC risk scores Risk Adjustment in Historical Benchmark Period Risk Adjustment in Performance Years 2

3 Risk Adjustment: Overview Risk adjustment is a method for adjusting expenditures to account for differences in expected health costs of individuals Adjustment can take into account demographic information (age, sex, eligibility) and health status (diagnoses) Why adjust? To account for changes in severity and case mix over time and to more accurately set ACO performance targets. Recognize ACOs that care for complex patients, and not create incentives for ACOs to avoid these populations. 3

4 CMS-HCC Risk Scores CMS-HCC (Hierarchical Condition Categories) risk scores The CMS-HCC model uses beneficiary demographic characteristics and prior year diagnoses to predict relative Part A and Part B Medicare fee-for-service program payments The CMS-HCC model does not incorporate Medicare Part D costs The CMS-HCC model is prospective, meaning it uses prior year information to predict costs Same risk adjustment model used for Medicare Advantage Separate CMS-HCC models for Aged-disabled community and institutional ESRD New Medicare enrollees (demographic score) 4

5 Demographic Factors Used in CMS-HCC Risk Scores 24 age-sex cells E.g., male age Medicaid dual eligible status By sex and aged vs. disabled entitlement Disabled status Current disabled: Separate age/sex and Medicaid factors Selected diagnoses have different risk weights Currently aged, originally entitled to Medicare by disability Separate factor by sex 5

6 Diagnoses Used in CMS-HCC Risk Scores The diagnoses used to calculate risk scores for fee-for-service (FFS) beneficiaries are from FFS claims Use International Classification of Disease, Version 9, Clinical Modification diagnosis codes (ICD9-CM) Diagnoses from the following settings/providers are used Hospital inpatient Hospital outpatient Physician Clinically-trained non-physician (e.g., clinical psychologist) The CMS-HCC model counts only the most severe manifestation among related conditions 6

7 Hypothetical Illustrative Example of Beneficiary s Individual Risk Score Calculation Beneficiary is male, age 77, with the chronic conditions: congestive heart failure, diabetes with complications, and chronic obstructive pulmonary disease Risk adjustment model coefficients Male age 77 = $5,100 CHF = $3,900 Diabetes w/ comp = $3,300 COPD = $3,700 Beneficiary s predicted expenditures are $16,000 Average expenditures for all beneficiaries are $10,000 Beneficiary s risk score = $16,000 / $10,000 = 1.6 7

8 Risk Adjustment in Historical Benchmark Period The CMS-HCC prospective risk adjustment models will be used to calculate the ACO s assigned beneficiary population s risk scores for the benchmark years, which are used in calculating the historical benchmark. Changes in the ACO s risk score between benchmark years 1 and 3 will be used to trend forward benchmark year 1 expenditures. Similarly, changes in the ACO s risk score between benchmark years 2 and 3 will be used to trend forward benchmark year 2 expenditures. 8

9 Risk Adjustment in Historical Benchmark Period (cont d) BY1 expenditures will be adjusted by the BY1 to BY3 risk ratio (BY3 risk score BY1 risk score). Similarly, BY2 expenditures will be adjusted by the BY2 to BY3 risk ratio (BY3 risk score BY2 risk score). BY1 BY2 BY3 [C] Assigned Beneficiary HCC Risk Scores ESRD Disabled Aged/dual Aged/non dual [D] Risk Ratios to BY3 ESRD Disabled Aged/dual Aged/non dual Risk ratios used to trend historical benchmark expenditures to benchmark year three risk 9

10 Risk Adjustment in Performance Years The benchmark will be annually adjusted for changes in health status and demographic factors during the performance year. Newly assigned beneficiaries vs. continuously assigned beneficiaries 1) Newly assigned beneficiaries in a given year = Beneficiaries assigned to the ACO in that year but not assigned to the ACO in the prior year and not receiving primary care services from the ACO in the prior year. 2) Continuously assigned beneficiaries in a given year = Beneficiaries assigned to the ACO in that year and assigned to the ACO in the prior year or receiving primary care services from the ACO in the prior year. 10

11 How to Determine Final Risk Scores to Use in Adjusting Benchmark For newly assigned beneficiaries, an ACO's CMS-HCC prospective risk scores will be annually updated in each performance year to adjust the historical benchmark for changes in severity and case mix relative to the newly assigned population from the historical benchmark period (BY3). For continuously assigned beneficiaries, patient demographic factors will be used to adjust the benchmark to account for changes between the benchmark period and the performance year, unless the continuously assigned population shows a decline in its CMS- HCC risk scores, in which case health status changes for this population will be adjusted by their CMS-HCC risk scores. 11

12 Example 1 CMS-HCC Risk Score Used for Continuously Assigned Beneficiaries Determine Final Risk Ratio [R5] Step 1 Calculate Risk Ratios Demographic Ratio: HCC Ratio: Weights ESRD % Disabled % Aged/dual % Aged/non dual % Average (dollar weighted) Dollar weighted average risk ratios Historical Benchmark $ x Continously Assigned Person Years [R6] Step 2 Final Adjusted Risk Scores HCC Score: Risk Score to use: Avg Adjusted Score: ESRD Disabled Aged/dual Aged/non dual Because dollar weighted average HCC risk ratio is less than one, use HCC risk [R7] Step 3 Final Risk Ratios Risk Ratio: ESRD ratio for continuously assigned Disabled Aged/dual Aged/non dual Weighted average of PY1 HCC score for newly assigned plus appropriate risk score for continously assigned PY1 average adjusted score / BY3 average HCC score These risk ratios are multiplied by the historical benchmark dollars and added to the National growth increment to produce the ACO s updated benchmark expenditures 12

13 Example 2 Demographic Factors Used for Continuously Assigned Beneficiaries Determine Adjusted Benchmark Continously Assigned [R5] Step 1 Compare Risk Ratios Demographic Ratio: HCC Ratio: Weights ESRD % Disabled % Aged/dual Dollar weighted % Aged/non dual average risk ratios % Average (dollar weighted) Historical Benchmark $ x Continously Assigned Person Years Newly Assigned [R6] Step 2 Final Adjusted Risk Scores PY1 HCC Score: Risk Score to use: Avg Adjusted Score: ESRD Disabled Aged/dual Aged/non dual Because dollar weighted average [R7] Step 3 Benchmark Adjustment Risk Ratio: HCC risk ratio is greater than one, ESRD use demographic ratio for Disabled continuously assigned Aged/dual Aged/non dual Weighted average of PY1 HCC score for newly assigned appropriate risk score for continously assigned PY1 average adjusted score / BY3 average HCC score These risk ratios are multiplied by the historical benchmark dollars and added to the National growth increment to produce the ACO s updated benchmark expenditures 13

14 Incorporated Risk Scores in Adjusted Benchmark Risk ratios are multiplied by the historical benchmark dollars and added to the National growth increment to produce the ACO s updated benchmark expenditures 14

15 Wrap-up Risk Adjustment for the Medicare Shared Saving Program Risk adjustment helps to more accurately establish an ACO s performance target, that is used to measure the ACO s financial performance. Risk adjustment methodology reflects changes in health status of an ACO s assigned beneficiary population over time, both in establishing the historical benchmark and during the performance year. Risk adjustment is performed at the population level, taking into account enrollment status, HCC and demographic factors. 15

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