A study shows the CMS-Hierarchical Condition Category model used for Medicare Advantage risk adjustment may inaccurately estimate beneficiaries’ spending depending on race or ethnicity.1 This might perpetuate disparities by overpaying for some low-cost populations and underpaying for some high-cost groups.
MA plans are paid a set amount per member per month based on the CMS-HCC model, which uses historic utilization, diagnoses and costs for fee-for-service Medicare to predict costs for MA plan members and accounts for age, sex, disability and eligibility for Medicaid, but not race or ethnicity.
A study published in Health Affairs in January found the current risk adjustment model overpredicts annual spending for Black and Hispanic community-dwelling beneficiaries, and risk-adjusted spending is lower than spending for white beneficiaries despite Black and Hispanic members’ worse risk-adjusted health and functional status.2 The researchers found that “payment adjustments that depart from predictive accuracy are needed to support health equity.”
In the present study, Avalere estimated predicted costs and compared them with actual costs based on FFS beneficiary claim data. The researchers found that the CMS-HCC model was generally accurate for Black and non-Hispanic white beneficiaries, overpredicted costs for Asian, Pacific Islander and Hispanic beneficiaries, and underpredicted costs for Native American and Alaska Native beneficiaries.
Researchers also found that overprediction increases for non-Hispanic white beneficiaries as the number of diagnosed conditions increases, but underprediction increases for Black and Hispanic beneficiaries. Thus, the mode does not adequately account for the cost of treating members with multiple chronic conditions.
Implications for MA member care
According to the Better Medicare Alliance, “A stable risk adjustment system is essential to ensure sustainability in benefits provided to enrollees and to the continued innovation in the delivery of high quality, coordinated, and affordable care to all Medicare Advantage beneficiaries.” In other words, the model coefficients may build inequities into the MA plan payment structure and perpetuate health disparities.3
More than 30% of medical costs for Black, Hispanic, and Asian Americans are related to health inequities, according to an estimate from the American Public Health Association.4 An inaccurate CMS-HCC risk score threatens to perpetuate structural barriers to health care faced by Black, Hispanic, Native American and other non-white MA beneficiaries by underfunding the health plans they rely on. Underfunding also impedes MA plans’ ability to offer innovative benefits and plan designs that keep members healthy and out of the hospital, such as technology-enabled home health care, programs to improve social drivers of health and care coordination.
The Avalere study authors note that as part of the 2024 MA and Part D Advance Notice to MA Organizations, the CMS proposed reclassifying HCCs using International Classification of Diseases, Tenth Revision, Clinical Modification codes.
The CMS acknowledge that beneficiary scores may change even in the absence of significant health status changes. The new version bases risk scores on more recent utilization, coding and spending patterns and may improve risk score accuracy.5 However, as Avalere points out, more research on the effects will be needed.
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- Cornfield, T., Creighton, S., et al. Assessing the MA Risk-Adjustment Model’s Accuracy Among Subpopulations. Avalere. May 26, 2023. https://avalere.com/insights/assessing-the-ma-risk-adjustment-models-accuracy-among-subpopulations
2 J. Michael McWilliams, J. Michael, Weinreb, G., Ding, L., et al. Risk Adjustment And Promoting Health Equity In Population-Based Payment: Concepts And Evidence. Health Affairs. Jan. 2023. https://doi.org/10.1377/hlthaff.2022.00916
- Better Medicare Alliance. Understanding Risk Adjustment in Medicare Advantage. June 2017. https://www.bettermedicarealliance.org/wp-content/uploads/2020/03/Understanding-Risk-Adjustment_WhitePaper_June2017.pdf
- Edwards, J. Health equality, equity, and justice: Know the difference and why they matter. Healthline. Nov. 28, 2022. https://www.healthline.com/health/what-is-health-equality
- Prescott, L. A breakdown of CMS’s 2024 HCC proposed changes. Association of Clinical Documentation Integrity Specialists. March 9, 2023. https://acdis.org/articles/note-acdis-interim-director-breakdown-cms%E2%80%99s-2024-hcc-proposed-changes