New Medicare Advantage payment methodology could take hold in 2022

September 14, 2020


CMS on Monday pitched changes to Medicare Advantage payments for 2022 that would complete a multiyear phase-in of a new payment methodology in which plan payments are adjusted using diagnoses solely from encounter data, which is information created by healthcare providers about patients’ medical conditions and treatment.

In 2022, the agency wants to fully transition to a risk adjustment model first adopted for 2020, as required by the 21st Century Cures Act. The model, called the CMS-Hierarchical Condition Categories model, adds variables that count conditions in the risk-adjustment model and includes for payment additional conditions for mental health, substance use disorder and chronic kidney disease.

Fully phasing it would also mean that CMS would rely on encounter data as the source of patient diagnoses in calculating risk scores. Risk scores represent the expected medical cost of a beneficiary and are used to adjust federal payments to Advantage plans. Generally, the sicker the person, the higher the risk score and, consequently, the higher the payment an Advantage plan receives. Lower risk scores net lower payments for the insurer.

Historically, CMS has used diagnoses from inpatient records submitted into its risk adjustment processing system to supplement encounter data in the payment calculation but said it will discontinue that policy for 2022.

The health insurance industry has long railed against the use of encounter data to adjust their payments. They argue that the data is incomplete and often inaccurate, and that its use would lead to lower payments to Advantage plans. CMS said it has worked with health insurers to improve the data’s accuracy.

The proposals are included in the first of two parts of the 2022 Medicare Advantage advance notice. The second part, which deals with planned changes to capitation rates and other risk adjustment methodologies, has not yet been released.

In light of the COVID-19 challenges that insurers are dealing with, CMS published the first part of the advance notice about three months earlier than it has in previous years to give health plans more time to prepare their bids for 2022, which are due early June 2021. CMS said it is also considering publishing the final rate announcement in mid-January rather than April, per usual.