Understanding risk adjustment: The definitive RADV rulebook for healthcare

Get ready for an onslaught of requests for medical records from Medicare Advantage plans. Risk Adjustment Data Validation (RADV) audits are expected to rise, based on a recent regulatory ruling by the Centers for Medicare & Medicaid Services (CMS). 

The federal agency, which oversees Medicare Advantage, determined to expand the scope of its audits significantly. This ruling impacts the frequency of claims audits, which will affect a multitude of stakeholders. If you accept Medicare Advantage plans in your practice, it will certainly affect your practice, too.

In the midst of these changes, which specific elements of the final RADV rule should your practice be attuned to? Read on to learn about RADVs — and practical strategies for navigating this evolving landscape.

RADV stands for Risk Adjustment Data Validation. 

As a program implemented by CMS, its aim is to ensure the accuracy of risk-adjusted payments made to MA plans. Because CMS relies on commercial companies — Humana, United Healthcare, and more — to administer Medicare Advantage plans in the market, the agency needs a method to appropriately pay companies to insure Americans over the age of 65.

In risk-adjusted payment models, such as those used by Medicare Advantage plans, payments to facilities and providers are adjusted based on the health status and medical conditions of their patients. 

So, who cares? That is, why would providers be concerned about this uptick in RADV audits if they’re being imposed on Medicare Advantage plans? The beneficiaries of those plans are your patients, and the patients’ medical records represent the source of truth. If the insurer is audited, they will likely need your assistance. 

Many debate their value. However, CMS has concluded that RADV audits play a crucial role in identifying and correcting both overpayments and underpayments to MA plans. They help to maintain the integrity of the Medicare program and ensure accurate reimbursement for healthcare services.

RADV audits take place following the final risk adjustment data submission deadline for the MA contract year. It’s at that point that CMS recalculates the risk factors for beneficiaries under review. CMS also assesses the need for payment adjustments.

During a risk-adjustment audit, CMS reviews a sample of the MA plan's claims and verifies that the diagnoses submitted for risk adjustment are documented in the patients’ medical records. The audit results are then extrapolated to the entire plan contract to determine if the plan received appropriate payments. 

Several risk-adjusted methodologies exist. However, CMS’ Hierarchical Condition Category (HCC) risk adjustment model is one of the most common. Medical billing and coding is a complicated concept. That’s because there are various rules (including coding conventions, CPT® coding guidelines, ICD-10-CM coding guidelines, payer requirements, and more) to follow — and the rules change often. 

RADV audits on patient medical records validate diagnosis codes tied to HCCs. So, it’s vital that HCC coding is accurate to report a patient’s health status correctly.

Risk adjustment discrepancies occur when a beneficiary’s payment-based HCCs, relying on MA self-reported data, don't match the HCCs assigned during CMS' RADV audit process. Adding up all of these differences during the medical record review process determines the overall payment error level.

The purpose of risk adjustment in healthcare is to pay for patients with additional, higher needs. By assigning a risk score to a person’s health status, risk adjustment allows insurers to predict how costly the individual’s care will be for the coming year.

The underlying principle is to avoid equal or lower payments to insure sicker patients and, conversely, to prevent overcompensating for those covering healthier individuals.

Whether it's within MA plans or applied alternative payment models like shared-savings contracts and accountable care organizations, risk adjustment ensures that reimbursement accurately reflects the health status of the patient population.

CMS’s final rule has expanded the scope of RADV audits for Medicare Advantage plans. 

The federal government’s goal is to no longer overpay the insurers that administer the program. CMS argues that these insurance companies, collectively referred to as Medicare Advantage Organizations (MAOs), have been paid too much for unsupported medical diagnoses in beneficiaries' records. 

According to a new report from CMS, the agency made $16.55 billion in improper payments to its Part C supplemental plans for care delivered in 2021. This represents a 6.01% improper payment rate. 

Addressing three main elements, the final rule eliminates the Risk Adjustment Factor (RAF) and the Fee-for-Service Adjuster (FFSA) in RADV audits. 

As a result, CMS no longer extrapolates RADV audit findings for payment years (PY) 2011-2017. Plans can no longer offset against the extrapolated overpayment amount determined in the RADV audit.

This adjustment factor has previously influenced the permissible level of payment error.

Under the new rule, a look-back period starting with the payment year 2018 allows CMS to recover extrapolated overpayments from that period. The estimate is that insurers will get to keep $2 billion by only doing extrapolation from 2018 and beyond.

Here’s how CMS’s final ruling will affect your practice:

It’s likely — if you haven’t experienced it already — that there’ll be a surge of administrative tasks. These will be related to responding to record requests. 

The insurance company may also reach out to your practice for clarifying information requested during a RADV audit. The result of this may strain resources and divert attention from patient care and other essential tasks.

An increase in the number of RADV audits will lead to greater scrutiny of physician documentation. This may be an impetus for improving clinical documentation. 

The RADV rule's extrapolation policy incentivizes MCOs to closely scrutinize documentation for risk-adjusted payments. This emphasizes the importance of accurate coding and complete medical records for providers, impacting MCOs' reimbursement rates. MCOs should be aware that "Queries" requesting additional documentation are not permitted under the new policy. These diagnoses wouldn't be considered reliable data according to the risk-adjustment guidelines.

Here are strategies to master RADV challenges.

Practices should conduct internal audits focused on billing compliance to guarantee the accuracy and clinical support of diagnosis codes. These audits should generate reports summarizing findings and include instances of incomplete documentation in patient encounters, together with recommendations for improvement. 

To capture accurate diagnoses, remain compliant with coding requirements, and contribute to your practice’s financial goals (all without compromising meaningful interactions with patients), technology can be the answer.

According to Wolters Kluwer, having the proper tools in place can help enable more efficient and accurate documentation that begins at the point-of-care. Provider-focused intelligence tools embedded in the electronic health record (EHR) system can streamline search and guide your physicians to the most specific diagnosis code.

Support your practice’s entire clinical workflow and control how you deliver care with Tebra’s cloud-based, ONC-certified electronic health record (EHR).

For more information, here is where you can access the RADV final rule at the Federal Register.  

RADV in medical coding stands for Risk Adjustment Data Validation.

RADV audits verify risk-adjusted data and influence reimbursement for healthcare services. Accurate coding ensures fair payments, maintains program integrity, and aids compliance, impacting practices by shaping their financial outcomes.

CMS has the authority to conduct annual risk adjustment data validation audits to ensure MA payment integrity. Via these audits, CMS validates the accuracy of the diagnosis codes the insurance plans submitted for payment.

Risk adjustment is crucial in healthcare reimbursement to ensure fair compensation for providers caring for patients with varying health complexities. It adjusts payments based on the relative health risk of individuals and promotes equity in reimbursement.

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