On September 10, 2018, the United States Government Accountability Office (GAO) published a report titled “Medicare Advantage:  Benefits and Challenges of Payment Adjustments Based on Beneficiaries’ Ability to Perform Daily Tasks” (the Report), which found that the current Medicare Advantage (MA) risk adjustment model underestimated spending for beneficiaries with functional limitations.

According to the Report, the federal government spent approximately $210 billion on the MA program for 2017.  These plans serve about one-third of all Medicare beneficiaries and are compensated according to a monthly capitated amount that is adjusted to reflect beneficiary health status.  This risk assessment model of payment pays more to MA plans that serve beneficiaries who are in poorer health.  According to the Report, currently, the risk assessment model considers the beneficiaries’ demographics and clinical diagnoses, but it does not account for the beneficiaries’ functional statuses. 

Pursuant to the 21st Century Cures Act, GAO undertook this study to report on the incorporation of beneficiary functional status into the MA risk adjustment model.  The Report found that “risk adjustment accuracy could be improved by accounting for functional status, thereby reducing financial disadvantages that may exist for MA plans that enroll and care for beneficiaries with functional limitations.”  However, the Report cautions that any potential improvement would depend on a number of factors, such as how functional status is measured, how the data is collected, and how the information is incorporated into the risk assessment model. 

The Report also acknowledges that including functional status in the MA risk assessment model could pose certain challenges.  The following are some of the challenges identified in the Report: 

• The expansion in information collection “would be resource intensive for CMS in terms of infrastructure and consensus-building.” 
• The information collection effort could also be intensive for providers and MA plans.  According to the Report, providers and MA plans expressed “concern about any data collection efforts that would go beyond what CMS currently requires,” with providers noting “that they already may conduct one or more assessments of a given beneficiary.” 
• Expanding the collection of functional status data may “also be an imposition on beneficiaries or cause confusion.” 
• In addition, including functional status in the MA risk adjustment model may give MA plans an incentive to report functional limitations, which could result in overpayment challenges.  Notably, “[s]uch improvements in the identification of MA beneficiaries with functional limitations could result in these beneficiaries having higher risk scores—and appearing sicker—than beneficiaries in Medicare FFS with the same limitations, health conditions, and other characteristics.” 

The Report can be found here.