Pathways to Success: For ACOs, a key to managing two-sided risk is to understand the patient risk adjustment score

On December 18, 2018, CMS issued a final rule that creates a new direction for the MSSP Program, generally referred to as the “Pathways to Success” — which is the government’s dramatic redesign of Accountable Care Organization (ACO) programs. The rule is complex, but the basic change is simple:

  • Previously, Medicare ACOs were allowed to linger for years in “upside only” tracks that offered the opportunity for shared savings without any downside financial risk.
  • Starting this year, all ACOs will be on a much shorter runway to “two-sided” risk. The new tracks will offer higher shared savings incentives, but they will also include the possibility of potential losses if spending exceeds benchmark limits starting at Level C.

Understandably, many healthcare leaders are focusing on the new challenge of managing downside risk, but the first step is to know how risk adjustment functions within an ACO. Whether you are talking about upside or downside risk, one of the most important concepts is to understand the patient’s risk adjustment score.

How does the government determine patient risk? It calculates risk adjustment scores using a complex methodology known as the CMS-HCC (Centers for Medicare & Medicaid Services – Hierarchical Condition Category) model. The methodology is complicated, but its foundation is accurate HCC documentation and coding as well as demographic data.

Here is why the risk adjustment score is so important: Medicare updates the ACO benchmarks each year to reflect the ACO’s baseline using historical expenditures. This baseline is trended forward, and the full HCC risk adjustment score is used to determine savings and losses weighted by aggregated patient expenditures.

  •  All things being equal, if your patient population is relatively sick (i.e., has more diagnosed HCC chronic or severe acute conditions), you will be assigned a higher benchmark due to a higher risk adjustment score.  You will also have a better opportunity to achieve higher shared savings with less risk of incurring a loss.
  • Conversely, a relatively healthy population (i.e., less identified HCC chronic or severe acute conditions) will result in a lower risk adjustment score – and less wiggle room when it comes to optimizing incentives.
  •  With the upside of identifying and diagnosing HCC chronic conditions comes the responsibility for more accurate documentation and coding in the patient’s clinical record. The accuracy of the documentation is key to avoiding any potential compliance issues and dodging penalties.

The bottom line: Organizations can no longer stay for years in a Medicare ACO program without taking on financial risk.  Therefore, ACOs must ensure their providers are accurately documenting, addressing and reporting patient HCC diagnoses (using appropriate ICD-10-CM codes).  Inaccurate reporting can also lead to lower-than-appropriate patient risk adjustment scores and, ultimately, a lower-than-manageable benchmark.

Many healthcare leaders are unaware of the role of the patient’s risk adjustment score and how this score affects incentives and losses in the Medicare Shared Savings Program (MSSP).  As a result, many organizations are missing out on shared savings opportunities. As these organizations move into two-sided risk under Pathways to Success and other value-based programs, they are in greater danger of incurring financial losses.

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