Risk adjustment (RA) sounds relatively nondescript; an industry that identified on a color wheel would be a solid beige, or a respectable eggshell. Little-understood and unsexy as it appears, however, RA is critical to the functioning of the insurance industry, the healthcare system, and to the wellbeing of nearly every American family.

It keeps Medicare Advantage affordable

To understand the importance of RA, simply look to the Medicare Advantage (MA) program. Before RA, MA insurers were paid the same amount for every person enrolled in a health plan – whether they were relatively well or suffered a myriad of chronic conditions. As a result, insurers were incentivized to enroll people with low costs (well), and avoid the high-cost (sick) ones. Consequently, prior to 2004 (when a rigorous RA formula was introduced) the federal government regularly overpaid for MA enrollees compared to traditional Medicare enrollees.

After the implementation of risk adjustment, insurers had less incentive to game MA enrollment (in policy terms they “reduced favorable selection”), because the risk adjustment formula pays plans the average cost of caring for the average person in a particular risk category.

This means the  introduction of Risk Adjustment has helped lower the cost to the taxpayer for maintaining Medicare Advantage, while improving the coverage and care received by high-cost patients.

You can see then why risk adjustment will continue to be important in the future, as the government seeks to find ways to bend the cost curve of the Medicare program while maintaining access and quality.

It’s about our personal health

While the high level discussions about healthcare are important, access to healthcare isn’t just dollars and cents, it’s life or death.

Looking at it simply, RA “levels the playing field” among insurers, but RA isn’t just just about reimbursement, it’s about being compensated for keeping people well, and compensating insurers for taking on, and taking care of, those of us that need it most. RA incentivizes organizations to take on the care of sick patients and deliver quality care.

RA in Medicare Advantage directly impacts and improves chronic disease management and care coordination — yes, directly.

In the Medicare Advantage system, practitioners document clinical diagnoses accurately to ensure that beneficiaries receive the appropriate care management and related services they need based on their condition. In Fee-For-Service models, payment isn’t risk adjusted, and so less emphasis and attention is paid to documentation, analysis and coding patterns. Rather, time is spent documenting every procedure or test given so they accurately capture the cost.  It’s proven that effective documentation and diagnoses result in earlier treatment, higher treatment rates, and consequently, better health outcomes.

RA will continue to have an outsized impact

There are interesting and exciting days (health care wonks stand up) ahead for the RA industry, and Apixio is committed to revolutionizing the field via its cognitive computing platform,  unlocking the valuable insights locked away in unstructured patient data. Effective and efficient RA will continue to be critical infrastructure of a well-functioning health-care system, especially as it  goes through difficult growing pains.