A Vision for Modernizing Medicare Risk Adjustment: Building the Evidence for Reform

Medicare Advantage (MA) is the largest source of Medicare coverage for seniors today and continues to grow. The most important payment policy underpinning MA is its risk adjustment system, now version 28 (v28) of the Hierarchical Condition Category (HCC) model, based on diagnoses reported on Medicare fee-for-service (FFS) claims. The impacts of risk adjustment go far beyond payments, with the Centers for Medicare & Medicaid Services (CMS) noting its effect on competition—both between MA and Original Medicare (OM) and within MA beneficiary engagement, benefit design, clinical care, and provider contracting. While discussions of risk adjustment reform often focus on technical issues such as coding intensity or model accuracy, these challenges are symptoms of a broader problem: the current system was designed around the data, technology, and policy environment of two decades ago. Modernization should therefore be guided not only by better prediction, but by a clear vision of what risk adjustment is intended to accomplish within a contemporary health care system and ideally prevent the need for falling behind again.

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