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CMS releases HHS risk adjustment data validation program final rule

Risk adjustment data validation ensures payment integrity and accuracy - and it affects what plans are paid.

Mallory Hackett, Associate Editor

The Centers for Medicare and Medicaid Services today released the final rule to change the methodology for the U.S. Department of Health and Human Services' risk adjustment data validation (HHS-RADV) program.

The program, which has operated since the 2017 benefit year, provides payments to insurers that cover high-risk, high-cost individuals. The payments are funded through charges to insurers that cover lower-risk enrollees. Insurers submit their own data, so HHS-RADV works to verify that the data is accurate and complete based on the risks of their members.

In CMS' final rule, the error-rate calculation and the application of HHS-RADV results have been updated.

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Risk adjustment data validation verifies that diagnosis codes submitted for payment are supported by medical record documentation. Its purpose is to ensure risk-adjusted payment integrity and accuracy, and it affects what plans are paid.

One change is to the error rate calculation, the methodology that CMS uses to determine adjustments to insurers' previously calculated risk adjustment risk scores and transfers. The error-rate calculation is partly based on the payer's failure rate, a measure of its failure to validate diagnoses and conditions associated with enrollees selected for audit.

Currently, HHS-RADV only makes adjustments to an insurer's risk score when the failure rate goes beyond a certain threshold making the payer an outlier.

With the final rule, for 2019 benefit year HHS-RADV and beyond CMS will make three updates to the error rate calculation:

First, it will modify the way that it groups medical conditions within the same hierarchical condition category (HCC) coefficient-estimation groups in risk adjustment to determine failure rates for those HCCs. This update will better account for the difficulty in categorizing certain conditions and to, therefore, refine how the error rate calculation measures risk differences within and between condition groupings, according to CMS.

The second change to error rate calculations is to reduce the magnitude of risk-score adjustments for issuers close to the threshold used to determine whether an issuer is an outlier. Under current guidelines, a "payment" cliff is created between insurers who fall just within the threshold and with those who just qualify as an outlier. The update works to mitigate the differences in risk scores and transfers, CMS said.

The last update will modify the error-rate calculation in cases where outlier insurers have a negative failure rate. Typically, positive error rates reflect a higher failure rate and negative error-rates reflect a lower failure rate. However, low failure rates are not always due to more accurate data submission, according to CMS.

A low failure rate can also be due to not identifying conditions that should have been reported in risk adjustment. The modifications refine the error-rate calculation to mitigate the impact of adjustments that result from negative error rates driven by newly found conditions.

The updates related to the application of HHS-RADV results will transfer the results to adjust the risk scores and transfer amounts for the benefit year being audited. Currently, HHS-RADV results are used to adjust the subsequent benefit year risk score and transfers.

This change addresses stakeholder concerns about making adjustments to risk scores using HHS-RADV data from the year before the time a payer's risk profile, enrollment or market participation could change from one benefit year to the next. CMS also said it would be a fairer process for insurers who are new to the state market risk pool, because they won't be subject to HHS-RADV adjustments from a benefit year in which they did not offer plans.


Because of the COVID-19 pandemic, CMS postponed the 2019 benefit year HHS-RADV process until 2021 to "allow issuers and providers to focus on the health and safety threats currently faced by enrollees, participants, and other impacted individuals due to the COVID-19 pandemic," it said in its letter.

HHS has since published a timeline for the 2019 benefit year with Initial Validation Audit samples being released in January 2021.

It anticipates that the 2020 benefit-year HHS-RADV will commence as usual with the release of IVA samples in May 2021. CMS said it will continue monitoring the COVID-19 pandemic and will make adjustments to this timeline as needed.


"CMS is committed to continuing to monitor and refine the HHS-RADV methodology and program requirements," CMS said in its fact sheet. "CMS designed the final rule to help improve the predictability of HHS-RADV results, while mitigating the burden to insurers."

Twitter: @HackettMallory
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