Risk Adjustment

Defining key terms:

  • Risk Adjustment: A way to calculate what to pay a health provider based on a patient’s health, their likely use of health care services and the costs of those services.
  • Risk Score: A number representing the predicted cost of treating a specific patient or group of patients compared to the average Medicare patient, based on certain characteristics and health conditions.

Purpose of Risk Adjustment

Risk adjustment is used to estimate the cost to treat a patient in a given year, based on the patient’s specific health needs. Risk adjustment is a way to help make sure doctors and other health providers are paid fairly for the people they treat – providers get paid more for patients who have more health problems than for healthy patients who may not need as many services. It evens the playing field, recognizing that not all patients are the same, so that providers are able to treat patients with different health care needs and not just healthier, less costly patients.

Risk Adjustment and the CMS Innovation Center

Many parts of the Medicare program use risk adjustment. The CMS Innovation Center uses risk adjustment to make sure that payments to model participants, such as doctors, are fair and accurate and reflect the health status of the patients being served by the model.

The CMS Innovation Center also uses risk adjustment to:

  • Set financial targets in CMS Innovation Center models, which can affect how much health care providers are paid by Medicare. 
  • [In some models] calculate and adjust what providers are paid in advance for each patient rather than for each office visit, procedure, or test.

The CMS Innovation Center continues to review and improve its risk adjustment and targets, also called benchmarking, relative to patients’ health over time.


Read more (PDF) about how risk adjustment works in the Global and Professional Direct Contracting (GPDC) and Kidney Care Choices (KCC) models.

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