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PACE Assist: Risk Adjustment 101 for PACE Programs

At Cognisight, we know how overwhelming risk adjustment and its associated activities can be. Without them, though, the information you have about your participants will likely be incomplete, your ability to intervene with care management efforts among participants will be compromised, and your PACE program’s revenue jeopardized.

Our goal is to help educate new PACE programs by focusing on the risk adjustment fundamentals first. The contents below provides information and resources to help you gain a better understanding of risk adjustment, including:

Risk Adjustment 101

Risk adjustment is pretty straightforward: capture the right information about your participants to provide them with the best care possible. More specifically, risk adjustment accomplishes:

  • Calculating the relative health status of individuals based upon disease acuity
  • Adjusting payments among PACE programs based on the relative health status and demographics of an enrollee
  • Protecting PACE programs from adverse selection
  • Ensuring PACE programs will be paid accurately for the risk they’ve assumed to insure their participants

Risk adjustment focuses on a subset of ICD-9 and 10 codes which are bucketed into HCCs, or hierarchical condition categories. There are currently 3,166 ICD-9's and 69,823 ICD-10s that link to 87 HCCs. These HCCs are ranked from most severe to least severe. The HCCs summarize the participant's diagnostic profile.

The greatest challenge for risk adjustment is fully documenting the diagnostic information and making sure it gets submitted for payment. As you can see below, just because a participant has certain diseases doesn’t guarantee that information will be submitted via a claim or RAPS file.

Sample Participant: Pre-Risk Adjustment Chart Review

Lives in own home and has diabetes with neurological manifestations; only coded and submitted as diabetes without complication
Participant also has major depression which has been documented appropriately in visit notes but was not coded and submitted
67 year old female in Monroe County, New York 0.283
Total Risk Score = 0.407
x County Rate of $864.45 (per member per month) =

With the benefit of a risk adjustment chart review, the participant’s true diagnostic information is captured and you will see their monthly payment accurately reflects their diagnostic profile. In the following example, by completing a risk adjustment chart review, this participant's monthly payment increases from $351.83 to $816.91.

Sample Participant: Post-Risk Adjustment Chart Review

Lives in own home and has diabetes with neurological manifestations which is captured via a risk adjustment chart review 0.344
Participant also has major depression which has been documented appropriately in visit notes and captured via a risk adjustment chart review 0.318
67 year old female in Monroe County, New York 0.283
Total Risk Score = 0.945
x County Rate of $864.45 (per member per month) =
Only after collection of the complete diagnostic profile and submission of data will two things happen. The PACE program will:
  • Have all the information they need to care for that participant
  • Be paid properly by CMS

What Is Risk Adjustment & Why Is It Important?

Risk adjustment contains many facets. Fundamentally, it is an actuarial tool used to calibrate the payments from CMS to PACE programs based on the relative health of their at-risk population. The goal is for the payments they receive to reflect the expected costs of providing care to their participants. It also helps ensure that the PACE program is appropriately compensated for the health status of the participants they enroll.  
A well-designed risk adjustment system will:

  • Minimize incentives for plans and providers to selectively enroll healthier participants
  • Ensure sufficient resources to provide effective treatment for high-cost participants
  • Foster competitions among MCOs based on how well they can deliver care and negotiate provider reimbursement, rather than whether they can enroll the healthiest individuals
  • Align incentives, limit gaming, and protect risk-bearing entities

CMS | Risk Adjustment Overview

What Does a Risk Score Do & How Is It Calculated?

A risk score compares the predicted costs for participants of a PACE plan with that of the average costs for the population eligible for enrollment. In general, all risk adjustment begins with a risk assessment, which assigns a risk score to plan participants. To conduct a risk assessment, information that can be used to predict health care costs of enrollees is collected. This data typically includes demographics, diagnoses, prescription drugs, functional status, self-reported health status, and prior utilization or expenditures.

Risk scores are based on a combination of demographic and disease factors. The demographics and disease factors are used in a risk adjustment model to calculate a risk score for each member or participant in order to adjust payments to health plans and PACE programs. After all factors are established, the demographic and disease portions of the risk score are added together to calculate a raw risk score. Then, the raw risk score is divided by the normalization factor that is published in the Final Call Letter by CMS each year. Depending on the model and segment, the coding intensity adjustment may be applied, which is also published by CMS each year in the Final Call Letter. If the beneficiary is in a PACE organization, then a frailty factor may be added. When a final risk score is calculated, that risk score is multiplied by the appropriate monthly capitation rate in order to come up with the monthly risk adjusted payment.

CMS | How to Calculate a PACE Risk Score

What Information Is Shared Between PACE Programs & CMS?

CMS provides a great deal of information to PACE programs to help them manage their risk adjustment efforts. This information includes:

  • Monthly Membership Report (MMR)
    The MMR contains a series of flags indicating which demographic and disease factors are used in the risk score calculation for each PACE participant. PACE programs receive separate MMR files for Part C and Part D.
  • Monthly Output Report (MOR)
    The MOR provides PACE programs with detailed information about the participant status of its population.
  • Error Report
    The Error Reports come from CMS along with the RAPS return files. If any clusters (containing a provider type, from-date, thru-date, and diagnosis code) aren’t accepted, they come back with an error. Each error has a specific code that explains why each cluster wasn’t accepted. For example, Error Code 310 means “Missing/Invalid HIC-No on Detail Record.” PACE plans need to “work” these reports so they can adjust their errors and re-submit the clusters.
  • Summary Reports
    PACE plans must send data back to CMS for accurate payment. Currently, PACE plans send RAPS (Risk Adjustment Processing System) files to CMS for accurate payment. RAPS files are simple text files that contain five fields of information that CMS uses to make sure payments are processed accurately. After CMS processes the files, they send RAPS Return files back to the PACE plan to confirm what has been accepted and rejected for payment. In 2015, CMS is transitioning away from RAPS files and requiring plans to submit encounter data files also known as EDPS (Encounter Data Processing System). EDPS files are also going to be used to determine what the PACE plan is reimbursed for but the files themselves contain a great deal more information.

What Is the HCC Model Table & What Does It Contain?

ICD-9 and 10 diagnoses codes are bucketed into HCCs or Hierarchical Condition Categories. For example, the three HCCs—17, 18, and 19—for diabetes represent 60 different ICD-9 diabetes diagnoses. The model is designed to adjust payments to programs for the health expenditure risk of their participants. The CMS-HCC model measures the disease burden that is correlated to diagnosis codes. These diagnoses codes are outlined in what is known as the HCC Model.

PACE programs use Model V.21 which has 3,166 ICD-9 codes and 69,823 ICD-10 codes. Since the implementation of ICD-10 on October 1, 2015, ICD-9 codes can only be used for dates of service prior to October 1, 2015. ICD-9 and 10 codes currently map to 87 HCCs and each of these HCCs has a predetermined Community and Institutional factor assigned by CMS. In addition, disease categories and their corresponding factors are organized. In many cases, participants can only carry one HCC per category. This means if multiple HCCs are submitted within a single disease category, the HCC with the lower factor value in that disease category will drop off. The hierarchy reflects which HCC remains and which HCC(s) are dropped.

Lastly, Disease Interactions (INTs) and Disabled/Disease Interactions (DDIs) are also included on the last page of the table. They too have an assigned Community or Institutional factor that is added when a combination of two or more specific HCCs are submitted for the same participant. When HCC 17 (diabetes with acute complications) and HCC 85 (congestive heart failure) are submitted for a participant, programs are reimbursed for HCC 17 (diabetes with acute complications), HCC 85 (congestive heart failure), as well as INT 3 DIABETES_CHF (diabetes and congestive heart failure).

What Does the CMS Timetable Contain?

The risk adjustment model is run to calculate risk scores for all beneficiaries with available data. This occurs three times a year:

  • Initial risk score
  • Mid-year update
  • Final reconciliation

In order for data to be included in the model run, risk adjustments require specific deadlines for data submission. These deadlines correlate to the dates of service and payments. CMS typically observes the following three deadlines each calendar year when calculating and delivering reimbursements to PACE plans:

  • First Friday in September
  • First Friday in March
  • January 31 after the payment year 

It is important for plans and programs to recognize the connection between the model runs and the dates of service. The table below shows CMS’ timetable for risk adjustment submissions.

2018 Initial
2017 Final
2018 Mid-Year 01/01/2017-12/31/2017
2019 Initial 07/01/2017-06/30/2018
2018 Final 01/01/2017-12/31/2017

When Will I Receive My Reimbursement?

The table below takes it one step further and shows payment dates for each model run with their corresponding dates of services and deadline submission.

Initial or final reimbursement date
2018 Initial 
January 2018
2017 Final 
01/31/2018 July 2018
2018 Mid-Year 01/01/2017-12/31/2017
August 2018
2019 Initial 07/01/2017-06/30/2018
09/07/2018 January 2019
2018 Final 01/01/2017-12/31/2017
01/31/2019 July 2019


If you have questions about the information provided here, please contact Cognisight’s Director of Operational Administration & PACE Account Management, Lynsie Tzimas, at 585.662.4264 or To learn more about Cognisight’s PACE risk adjustment services, please call 877.271.1657 or email