CMS issued a proposed rule on May 29 to amend requirements for the U.S. Department of Health and Human Services’ risk adjustment data validation (HHS-RADV) program. The proposal includes changes to two technical aspects of the HHS-RADV program, the error rate calculation, and application of results. CMS outlines the changes in the newly published fact sheet:
Updates to the HHS-RADV error rate calculation: The first proposal is to refine the HHS-RADV error rate calculation, the methodology CMS uses to determine the adjustments to issuers’ previously calculated risk adjustment risk scores and transfers based on HHS-RADV results. This error rate calculation is, in part, based on the issuer’s failure rate, a measure of the issuer’s failure to validate diagnoses and conditions associated with enrollees selected for audit. To avoid making adjustments to risk adjustment transfers for expected variations, HHS-RADV only makes adjustments to an issuer’s risk score when an issuer’s failure rate goes beyond a certain threshold making them an outlier. For 2019 HHS-RADV and beyond, CMS is proposing the following three modifications to the error rate calculation:
- CMS proposes to modify the way that it groups medical conditions in HHS-RADV within the same hierarchical condition category (HCC) coefficient estimation groups in risk adjustment to determine failure rates for those HCCs. This modification seeks to better account for the difficulty in categorizing certain conditions and to, therefore, refine how the error rate calculation measures risk differences within and between condition groupings.
- CMS also proposes changes that would reduce the magnitude of risk score adjustments for issuers close to the threshold used to determine whether an issuer is an outlier. Currently, issuers whose failure rates are not significantly different from issuers just inside the threshold may see significant changes to their risk scores and transfers, creating a “payment cliff” for issuers just outside the threshold. Adjusting the magnitude of risk score adjustments intends to mitigate this effect.
- In addition, CMS proposes to modify the error rate calculation in cases where a negative error rate outlier issuer also has a negative failure rate. Error rate outliers can be either positive or negative. Positive error rates reflect a higher failure rate and negative error rates reflect a lower failure rate. However, low failure rates are not always due to more accurate data submission. A lower failure rate can also be due to not identifying conditions that should have been reported. The proposed rule would refine the error rate calculation to mitigate the impact of adjustments that result from negative error rates driven by these newly found conditions.
Application of HHS-RADV Results: The second proposal would apply the HHS-RADV results to adjust the risk scores and transfer amounts for the benefit year being audited. Currently, HHS-RADV generally applies a prospective approach for making adjustments to risk adjustment transfers, meaning HHS-RADV results are used to adjust the subsequent benefit year risk score and transfers. For example, 2017 benefit year HHS-RADV results are generally used to adjust 2018 benefit transfer amounts. This proposed change is intended to address stakeholder concerns about making adjustments to risk scores based on HHS-RADV error rates calculated using prior year data, when an issuer’s risk profile, enrollment, or market participation could change substantially from benefit year to benefit year. It would also promote fairness by avoiding situations where an issuer who newly enters a state market risk pool is subject to HHS-RADV adjustments from a benefit year in which they did not offer plans.