In February, we wrote about the controversial effect of the federal risk adjustment factor on carriers, particularly in light of the recent failures of certain Co-ops. Shortly thereafter, the Department of Health and Human Services (HHS) and the Centers for Medicare & Medicaid Services (CMS) took action to change the risk adjustment methodology and payment transfer model going forward, with public input.

Specifically, on February 29, 2016, HHS published the final Notice of Benefit and Payment Parameters for 2017. Then, on March 24, 2016, CMS published a 130-page whitepaper on the federal risk adjustment methodology. The whitepaper was published in anticipation of the March 31, 2016 public hearing on risk adjustment (noticed in January). CMS will continue to accept public comment on the proposals set forth in the whitepaper until April 22, 2016.

As detailed previously, the current risk adjustment formula has met with criticism from many angles on both philosophical and technical levels. The whitepaper attempts to address some of these criticisms, and describes the proposals CMS is considering "to improve the model's ability to predict risk" as follows:

  1. Whether and how to account for partial year enrollment, whether through separate risk adjustment models based on enrollment duration or using interaction factors developed by type of condition.  
  2. Whether and how to develop a prescription drug model; specifically, a “hybrid” drug diagnosis model. We describe the benefits and concerns regarding adding prescription drug utilization to a diagnosis-based risk adjustment model, describe the empirical framework for inclusion and the drug classification and aggregation systems, and identify criteria for selecting the drug-diagnosis pairs for inclusion in the model.  
  3. Whether and how to pool high-risk enrollees in HHS risk adjustment.  
  4. An evaluation of concurrent and prospective risk adjustment models.  
  5. Recalibration of the 2018 risk adjustment model using the most recent data.  
  6. Evaluating the current distributed data environment and data collection (EDGE servers), including the benefits of basing risk adjustment models on individual and small group Affordable Care Act-compliant data, additional variables that could be collected to allow recalibration of the HHS risk adjustment models, and the enrollee level data collection process, burden, timing, privacy and security, and data use issues.

All of the foregoing are discussed in detail in Chapter 4 of the whitepaper. CMS has been careful to emphasize that the topics raised in the whitepaper are for consideration and that they will not necessarily be implemented as policy.

We will continue to report on developments of note in the risk adjustment space as CMS considers comments and modifies risk adjustment rules and methodologies going forward.