Value Based Reimbursement - Simplified

Part 1: Risk Adjustment Overview

If you’re confused by the following terms – Value-based reimbursement, Risk Adjustment, HCC Coding – you are not alone.  You would be hard-pressed to read an article on healthcare reimbursement that does not include one of these words.  The goal of this blog is to provide an uncomplicated overview of value-based reimbursement - within the context of the physician practice market. 

This first piece will focus on Risk Adjustment.  Simply put, Risk Adjustment ensures healthcare organizations that cover sicker-than-average patients receive additional compensation to pay for the extra care and services they provide.  Risk adjustment is a mechanism to allocate money to groups with a higher percentage of sicker patients.  This mechanism is driven by demographic and health status information (Dx/HCC Codes).  The Dx codes that are captured on a claim are mapped to HCC Codes which are then used to calculate a patient’s Risk Adjustment Factor (RAF) score.  CMS and commercial insurance companies adjust payments according to RAF scores – i.e. how “well” or “sick” an organization’s patient pool is in relation to others. 

Risk Adjustment Score Sample for Two Patients

In the example listed above, Joe Doe and Mary Jones have different observed conditions and thus different RAF scores.  Mary Jones’ RAF score would result in a higher expected cost for caring for her versus Joe Doe.  Medical Groups that treat “sicker” patients, such as Mary Jones, incur additional time and effort in the care delivery process.  This translates into an increased pool of funds so they can effectively treat their sick patients. 

For medical groups to ensure their “pool of funds” accurately reflects the wellness of their patient population, the accuracy and completeness of Dx/HCC Coding is a must.  Tune in next time for an explanation on the various ways in which medical groups are compensated in risk adjustment models.

See how RCxRules can help with HCC Coding and don't forget to check out part II and part III of this blog.