Risk Adjustment

Short-Term Steps for Long-Term Sustainability

Risk adjustment is a system that keeps providers and plans financially stable by accounting for how sick patients are — so payments to health care providers are fair, no matter who they treat. Risk adjustment uses data (like age, medical conditions, and past health care use) to predict how much care each patient is likely to need. 

CMS attempted to improve the current risk adjustment model, which relies on outdated approaches/data and unfortunately leads market distortions in how funds are redistributed, by reducing payments tied to certain diagnoses to limit inappropriate overpayments, though the change overlooks common but underdiagnosed conditions—like chronic kidney disease, obesity, and major depressive disorder—that still require attention but don’t affect provider payments. Modernizing the Medicare risk adjustment system to account for common population health risk factors is a key component of enhancing payment accuracy, reducing administrative burden, and promoting prevention-oriented care for Medicare beneficiaries.