The Adjusted Average Per Capita Costs (AAPCCs) are five-year moving averages per beneficiary spending at the county level for fee-for-service Medicare. Medicare’s costs in paying claims for beneficiaries with ESRD were not considered in these county estimates. ESRD enrollees are handled on a state-wide basis. The direct link between AAPCCs and payments created perceptions of geographic inequity as plans were more likely to serve counties with high AAPCCs and typically offered more comprehensive benefits than fee-for service Medicare or counties with lower rates. The Centers for Medicare and Medicaid Services (CMS) Hierarchical Condition Categories (HCC) ESRD risk adjustment model is based on the CMS-HCC model for aged/disabled beneficiaries: it uses the same HCCs and therefore retains the characteristics of the CMS-HCC model. The coefficients differ as they are estimated for the ESRD dialysis and transplant populations, which have different costs for their Part A and B benefits and different cost patterns among the various diagnoses. The following are the segments of the ESRD model: Dialysis, Transplant, and Post-Graft/Functioning Graft.
For the years after 2004, the Secretary of Health and Human Services is required to recalculate 100 percent of the fee-for-service Medicare costs at least every three years – so that at least every three years the Medicare Advantage (MA) capitation rate will be the higher of the fee-for-service rate and the minimum increase rate. For each year, the raw (not normalized) risk scores were divided by the average risk score for that year to produce risk scores below which average out to 1.0. The purpose of the risk scores is to adjust Medicare Advantage payments so that they accurately reflect how much each Medicare Advantage enrollee would be expected to cost. CMS has implemented a number of changes in the Medicare Advantage payment methodology beginning in 2012 (calendar year) as a result of payment changes enacted in the Affordable Care Act, including a new blended benchmark as the county rate; the new methodology used to derive the new blended benchmark county rates; identify the qualifying bonus counties; how to determine transitional phase-in periods; and the applicability of the star system in the rebates. Key components of the 2017 Medicare Advantage rates include: Revision to the risk-adjustment model to better account for fully dual eligible beneficiaries, Adjustment to certain measures within the Star Ratings program for socioeconomic status, Update to the blended risk scores using 75 percent of the risk score calculated using data from the Risk Adjustment Processing System (RAPS) and 25 percent of the risk score calculated using encounter data and Incentives to Medicare Advantage organizations to offer plans with lower maximum out-of-pocket limits.
It is important to mention that the health plans that participate in the Medicare Advantage program receive monthly capitation payments for each Medicare enrollee. Each capitated payment is the product of two general parts: 1) A base rate which reflects the payment if a Medicare Advantage enrollee has the health status of the national average beneficiary, and 2) A risk score which indicates how costly the enrollee is expected to be relative to the national average beneficiary.