The Centers for Medicare and Medicaid Services (CMS) expanded its authority to collect and use encounter data for risk adjustment and other purposes by a final amendment to Section 422.310 of the Medicare Advantage (MA) Rule (42 C.F.R. Part 422). The MA Rule amendment, effective October 1, 2008, is published today as part of the extensive Medicare Part A 2009 hospital inpatient prospective payment system final rule at 73 Federal Register 48433. The MA Rule amendment is at pages 48757, with its preamble explanation at pages 48650-56. CMS proposed this MA Rule amendment on April 30, 2008 in 73 Federal Register 23528 at pages 23668 and 23705-06.

Under the MA Rule amendment, CMS can require MA organizations to submit encounter data that “characterize[s] the context and purposes of each item and service provided to a Medicare enrollee by a provider, supplier, physician or other practitioner,” as well as “the functional limitations of enrollees.” CMS intends to use these data to adjust the monthly payments it makes to MA organizations under its “Hierarchical Condition Category” (HCC) risk adjustment payment methodology, which determines the annual risk scores of MA plan enrollees. Starting with the 2007 plan year, 100% of payments to MA organizations are risk adjusted. CMS expects the expanded encounter data it collects will allow more accurate payment to each MA organization based on its MA plans’ enrollees’ health and benefits utilization.

This expansion of CMS’s data collection authority is in addition to CMS’s proposal, issued June 26, 2008, to require MA organizations to report a broad range of data, including enrollee utilization of benefits, enrollee grievances and appeals, and agent and broker activities, training and conduct complaints reported to state insurance departments. See NGE’s July 3, 2008 Health Law Alert, “CMS Proposes Expansion of Medicare Advantage Data Reporting” at

CMS intends to identify the encounter data it wants in future guidance, which it promises to develop by “work[ing] closely with external stakeholders to ensure that administrative costs are minimized to the extent possible.” Acknowledging that MA organizations “will need sufficient time to schedule system changes needed to collect and report encounter data, and ... coordinate the implementation of encounter data reporting with other initiatives,” CMS promises to “consider the scheduling needs of MA organizations in [its] implementation timelines.”

The amendment allows CMS to use the collected encounter data, not only to determine the risk adjustment factor to apply to payments to MA organizations, but also to update CMS’s risk adjustment model, conduct quality review and improvement activities, and calculate Medicare Part A disproportionate share hospital percentages. (CMS incorporates hospital days for MA plan enrollees in its calculation of disproportionate share hospital percentages, which CMS uses to increase payments to hospitals serving disproportionate shares of low-income beneficiaries.) CMS may also use the encounter data “for Medicare coverage purposes,” which CMS says means to determine “whether day limits have been exhausted and, if so, how many such days.” CMS assures MA organizations that any proprietary information submitted is “protected from disclosure under the Trade Secrets Act,” and any “[b]eneficiary specific information [is] protected under the Privacy Act, and HIPAA, as well as the Federal Information Security Management Act.”

The amendment does not change the submission dates of encounter data for risk adjustment purposes. These dates remain the “first Friday in September for items and services furnished during the 12-month period ending the prior June 30, and the first Friday in March for data reflecting services furnished during the 12-month period ending the prior December 31.” The amendment does change the length of the grace period for late submission of encounter data, due on the first Friday in March for risk adjustment purposes, to January 31 of the year following the payment year. Before the amendment, this grace period ended on December 31 of the payment year. CMS permits this grace period to allow the annual “reconciliation process to account for late data submission.” Late data submitted for risk adjustment purposes after January 31 “will not be accepted for the purposes of reconciliation.”