Value-Based Care is Here to Stay: The Importance of Risk Adjustment To Provider Performance

The U.S. healthcare system is currently shifting to an incentive structure where providers are rewarded for better care, not more care. This transition from fee-for-service to value-based care is not only changing how patients are cared for, but also how providers are measured and compensated for performance.

With an ever-growing number of patients covered under value-based care programs, it’s crucial for providers to develop risk adjustment expertise so that they can position themselves for financial success in risk-sharing arrangements.

Who Does Risk Adjustment Impact?

Recently, CMS passed the Medicare Access and CHIP Reauthorization Act (MACRA) which set up two new payment tracks, Merit-based Incentive Payment System (MIPS) and Alternative Payment Model (APM), collectively referred to as the Quality Payment Program (QPP). Under QPP, CMS continues its push to improve the quality and affordability of care by creating financial incentives and payment models for providers to take on risk. Their goal is to have 90% of CMS payments linked to value-based care and 50% under APMs by 20181.

Physicians participating in MIPS will receive payment adjustments to their Medicare Part B payments based on a 100-point score. 60% of that score is comprised of quality and cost metrics, which are impacted by risk adjustment. In addition, CMS will be giving up to 5 bonus points on your final score for treatment of complex patients based upon risk adjustment. Providers participating in APMs—such as Medicare Accountable Care Organization (ACO) Track 1+, Next Generation ACO, or Comprehensive Care Plus (CPC+)—will also have their reimbursements tied to benchmarks that are risk adjusted.

In addition to MACRA, an increasing number of providers are entering risk-sharing arrangements with their payer partners. According to a recent Leavitt Partners analysis conducted April 2016, shared risk and shared savings agreements between providers and private payers covered 17.2 million lives. While risk-sharing is most common for Medicare Advantage members, other lines of business are starting to become more prevalent in risk-share contracting. Many of these arrangements use a risk adjustment model to calculate financial payments between the provider and the payer.

Between the growth in CMS-sponsored programs and private risk-sharing arrangements, provider organizations’ success will be increasingly impacted by risk adjustment.

Importance of Risk Adjustment

Risk adjustment in payment models refers to the practice of accounting for the differences in the underlying risk (i.e., expected costs) of patient populations. It would be unfair to compare the costs incurred of a healthy member to that of a sick member without properly adjusting for the expected cost of each person based on his/her health status. However, risk adjustment is not just a payment model mechanism. Successful capture of risk enables obtaining a complete and accurate picture of your patients’ acuity, which is critical to ensuring proper reimbursements, effectively managing costs of your high-risk members, and delivering high quality care.

Effective risk capture, however, is not an easy feat. Some of the key hurdles providers cite that prevent them from entering risk-sharing arrangements is the lack of access to administrative and claims data, and the required risk infrastructure to allow effective management of care and costs for patients.  As organizations take on more risk burden across multiple patient populations, it is important to set up a comprehensive risk adjustment program that can cover all relevant populations.

Developing a comprehensive risk adjustment program is critical for any risk-bearing provider and requires establishing end-to-end processes that engage both physicians and patients. In part 2 of our Value-Based Care is Here to Stay blog posts, we’ll discuss how providers can think strategically about transforming their processes and leveraging technology to succeed in the value-based care landscape.


111/02/17 Final Rule: Centers for Medicare & Medicaid Services (CMS), HHS