Program Background

Program Background

Each year the Centers for Medicare & Medicaid Services (CMS) calculates an annual capitated payment, on a monthly basis, for each Medicare beneficiary enrolled in a Medicare Advantage (MA) contract based on diagnosis data previously submitted by MA Organizations to CMS. The diagnosis data and beneficiary demographics are input into the CMS-Hierarchical Condition Category (CMS-HCC) risk adjustment model. This model provides additive relative factors that are used to determine risk scores and calculate risk-adjusted payments to MA Organizations for their enrollees.

Inaccurate or incomplete diagnosis data may lead CMS to disburse overpayments or underpayments to MA organizations. CMS conducts an annual Part C Improper Payment Measure (IPM) activity to estimate the improper payments for the Medicare Part C program due to unsubstantiated risk adjustment data.

Part C IPM activities are conducted each year for a sample of Medicare Part C enrollees. After defining the eligible population, a representative sample of beneficiaries from risk adjustment eligible contracts are selected for medical record review. MA Organizations submit medical record documentation to substantiate the sampled beneficiaries' CMS-HCCs that were used to determine the amounts CMS paid to the MA Organizations for that year. Certified coders code the medical records and the findings are used to recalculate risk scores for each sampled beneficiary.  The difference between the payment risk scores and the recalculated risk scores is termed Risk Adjustment Error. Validation results from the sample are extrapolated to the broader Part C population to produce payment error estimates that meet the Payment Integrity Information Act (PIIA) of 2019 requirements for the payment year.

Sampling Details:

The sample for each payment year is a stratified random sample of 930 beneficiaries, with a representative number of beneficiaries selected from each of three risk score groups: low, medium, and high. The eligible cohort consists of beneficiaries who were enrolled in contracts active in January of the year for which risk adjustment payments were made. The data collection period for each calendar year Part C IPM sample spans January 1 through December 31 of the previous year.

Contract and enrollee eligibility criteria for sampling can vary from year to year. For example, for the payment year 2021 (PY 2021) sample, Coordinated Care Plans (CCPs), Medical Savings Account (MSA) contracts, Private Fee-for-Service (PFFS) contracts, and Medicare-Medicaid Plans (MMPs) are included.  Cost contracts, Program of All-Inclusive Care for the Elderly (PACE) Organizations, and contracts that were terminated, divested, consolidated, or merged between January 2020 and January 2023 are excluded.

Because payments made in 2021 were based on diagnostic data submitted for 2020 dates of service, 12 months of enrollment in the same contract during 2020 are required for sampling eligibility. This criterion precludes sampling of enrollees who are new to Medicare or MA in 2020.

Currently, beneficiaries designated as end-stage renal disease (ESRD) or with at least on month of hospice status resulting in one or more eliminated monthly risk-adjusted payments during the data collection year are also excluded from the sample. Beneficiaries must have at least one 2020 International Classification of Diseases 10^th revision, Clinical Modification (ICD-10-CM) diagnosis code mapping to a CMS-HCC. Also, beneficiaries having any Fee-for-Service (FFS) diagnoses in 2020 that contributed to a final risk score for PY 2021 are excluded from the sample.

The Part C IPM will start to include ESRD beneficiaries in the sample for the PY 2022 in FY 2024 based on the Health Plan Management System (HPMS) notice, which is available as a downloadable pdf. Note, these are the enrollee criteria and are subject to modification as changes in MA payment policy occur.