The need to incorporate additional patient information into risk adjustment for Medicare beneficiaries

Equitable reimbursement for clinicians, health care facilities, and health plans who serve Medicare beneficiaries with widely varying health risks and medical needs is crucial. In traditional (fee-for-service) Medicare, the Centers for Medicare & Medicaid Services (CMS) increasingly pays via value-based payment (VBP) programs, in which payment is tied to performance based on quality and cost measures. In the Medicare Advantage program, which now serves more than one-third of Medicare beneficiaries, private managed care plans are paid capitated premiums based on each member’s risk profile. Because clinical outcomes and medical spending not only depend on the care that beneficiaries receive, but also on their underlying risk profile, accurate risk adjustment is essential to fairly judge clinicians and facilities in Medicare VBP programs and to fairly pay health plans in Medicare Advantage.