4 Best Practices for Avoiding Risk Adjustment Penalties

The Centers for Medicare & Medicaid Services (CMS) is taking aim at improper risk adjustment payments to reduce overpayments and eliminate wasteful spending within Medicare Advantage. In line with initiatives by the Department of Justice and Officer of the Inspector General, CMS’ latest updates to the Risk Adjustment Data Validation program sets the stage for thorough risk adjustment audits that could force plans to pay millions of dollars in penalties.

As the primary source of revenue for Medicare Advantage plans, maintaining compliance with CMS safeguards monthly risk adjustment payments to fund daily operations, plan benefits and quality improvement interventions. Explore the consequences of risk adjustment penalties and how to avoid them with the right risk adjustment best practices.

Risk Adjustment Compliance Requirements

Through risk adjustment, Medicare Advantage plans receive monthly payments from CMS based on each members’ risk score. This payment model uses demographic and social factors such as age, sex, low income and institutional status, as well as health conditions identified through diagnostic codes within the Hierarchical Condition Category (HCC) model to calculate a member’s risk score. The higher the risk score, the more funding a plan will receive to provide covered services.

CMS requires health plans to support reported diagnosis codes through medical chart documentation from an approved provider. Diagnosis code information must be reported and substantiated in a medical record every calendar year.

For example, if a provider diagnosed, documented and treated a member with lung cancer, the health plan could report lung cancer for that member for that year. However, if a provider reports that the member recovered from lung cancer the following year, the health plan could not report the same diagnosis in that year.

Scenarios that contribute to inaccurate risk adjustment scores include:

• HCC coding errors
• Lack of appropriate medical record documentation
• Overreliance on health risk assessments to diagnose members
• Chart reviews that lack associated service records

When a plan fails to support diagnoses with proper documentation, CMS can require plans to refund the federal government for any overpayments.

How is Compliance Enforced?

CMS holds direct authority over risk adjustment payments.  Through its Risk Adjustment Data Validation (RADV) program, CMS may impose penalties when the agency identifies overpayments. Medicare Advantage plans must comply with all program regulations, as well as face enforcement from the Department of Justice (DOJ) and be subject to audits conducted by the Office of Inspector General (OIG) when they violate program regulations.

Risk adjustment regulations are enforced under:

• RADV: Through the RADV program, CMS may conduct risk adjustment audits on a sample of a plan’s population to determine if diagnosis codes were accurately reported for a payment year. If the audit determines that the diagnosis codes were not supported, then CMS may recoup overpayments from plans. In the RADV Final Rule, CMS stated that the RADV program will begin extrapolating overpayments beginning with payment year 2018. Prior to 2018, CMS plans to recoup only the identified overpayment, without extrapolation.
• OIG Audits: The OIG wields the authority to conduct various reviews of government programs, including Medicare Advantage plans, to prevent and detect fraud and abuse. While these audits do not have immediate compliance penalties, the OIG can request action plans from health plans that demonstrate how they will resolve the audit’s findings. OIG audits have included calculated financial costs that are shared with CMS. CMS has stated that provisions in the RADV Final Rule, including extrapolation, will apply to OIG audits as well.
• False Claims Act: The False Claims Act prohibits knowingly presenting a false or fraudulent claim to the government for payment. When applied to risk adjustment payments, the DOJ can use the False Claims Act to hold Medicare Advantage plans liable for falsely reporting patient risk factors to CMS and impose financial penalties.

What Types of Penalties Can Plans Face for Non-compliance?

Failing to comply with federal regulations can result in financial penalties to recover funding from overpayments and punish plans that inaccurately code risk factors. The RADV program grants CMS the authority to recover overpayments. The DOJ has the authority to recover three times the overpayment and $11,000 per violation if a plan is convicted under the False Claims Act. Conviction under the False Claims Act may also lead to the plan being barred from participating in government healthcare programs.

In addition to the financial consequences of inaccurate risk adjustment codes, plans may also experience negative press, which can impact marketability and member enrollment.

Four Best Practices to Avoid Risk Adjustment Penalties

The University of Southern California estimated that risk adjustment overpayments could top $75 billion dollars in 2023, and several audits from the OIG have identified significant losses in funding due to inaccurate risk adjustment codes. Based on CMS’ announcement regarding the RADV program, one thing is certain: stringent and thorough risk adjustment audits are on the way.

Plans that delay in responding to this increase in regulatory oversight could face severe penalties and risk losing significant funding due to inaction. However, there is still time to adopt risk adjustment best practices to safeguard future funding and prevent penalties.

Communicate Effectively With Providers

Strong partnerships with providers and hospitals are vital for recording risk factors in an accurate and timely manner. Educate providers about the latest updates to the RADV program and work closely with them to improve reporting procedures. Their medical expertise and direct access to patients will prove invaluable in validating HCC codes through medical records.

Pick the Right Tools for the Job

The right software can make or break a plan’s ability to accurately and efficiently manage their risk adjustment programs. Review how technologically capable your current processes are and identify ways to streamline or improve your teams’ ability to manage HCC codes, organize projects and analyze data with appropriate software. The more inefficiencies and roadblocks you eliminate in your daily processes, the more prepared your organization will be at avoiding or addressing an audit.

Regularly Evaluate Reporting Procedures

Internally auditing risk adjustment programs enables Medicare Advantage plans to identify errors, high risk codes and incomplete data before it reaches CMS and triggers non-compliance. Risk factors and diagnosis codes should be continuously reviewed at a member level to identify codes that are likely to fail validation and need to be deleted. Previous years’ data, along with codes the OIG has targeted for audit, may help plans zero in on these high-risk HCC codes.

Refine Your Member Data

Medical charts play an important role during RADV audits, and plans should ensure they have the most accurate and update-to-date information on member diagnoses. Leverage the right vendor and provider partnerships during chart retrieval to identify appropriate documentation to support HCC codes and ensure member health statuses are up to date and accurately coded.

Safeguard Risk Adjustment Compliance and Funding

Through the right partnerships, procedures and tactics, Medicare Advantage plans can optimize their risk adjustment programs to secure appropriate funding each year and avoid penalties.

If you need assistance improving your risk adjustment procedures or maintaining compliance, reach out to Healthmine. Our Expert Advisory Services team has decades of combined experience providing strategic insights to Medicare Advantage plans throughout significant regulatory changes. Contact us to discuss strategies to resolve your risk adjustment pain points.