Reed Smith In-depth

On March 28, 2023, Bill Cassidy, MD (R-LA) and Jeff Merkley (D-OR) introduced a bipartisan bill targeting the Medicare Advantage patient risk scoring reimbursement methodology. Senators Cassidy and Merkley claim that the proposed legislation will reduce upcoding risks by improving the way the Medicare Advantage providers and plans assess patients’ wellness and determine health risks. The Medicare Advantage risk adjustment payment methodology has come under fire for the perceived financial incentives and risk of upcoding, which some allege are inherent in the current structure that assigns different payment amounts to beneficiaries based on their recorded diagnoses.

The No Unreasonable Payments, Coding, or Diagnoses for the Elderly (the No UPCODE) Act1 proposes revisions to the Social Security Act (42 U.S.C. 1395w–23(a)) to eliminate these perceived incentives. If passed, starting in 2024, the Centers for Medicare & Medicaid Services (CMS) must:

  • Use two years of diagnostic data in calculating the risk-adjusted payment rates, rather than the one year reviewed currently;
  • Not consider diagnoses collected from a chart review or health risk assessment when making risk adjustments for health status – a common risk adjustment approach of plans;
  • Establish procedures to provide for identification and verification of diagnoses collected from chart reviews and health risk assessments; and
  • Review the differences in coding patterns between traditional Medicare and Medicare Advantage, evaluate the impact on risk scores for Medicare Advantage beneficiaries, and issue a report on the same.

In light of these proposed changes, this Client Alert: (i) provides an overview of the current Medicare Advantage risk-adjusted payment methodology; (ii) discusses common themes in Medicare Advantage upcoding allegations; and (iii) reviews potential implications for providers and plans should the No UPCODE Act become law.


Unlike traditional Medicare, in which providers are paid on a fee-for-service basis, Medicare Advantage providers are paid a risk-adjusted standard rate per patient based on the patient’s health and reported diagnoses. This base rate is determined on an annual basis and takes into account data from inpatient hospital and ambulatory settings. It can be adjusted to account for a patient’s diagnosed medical conditions that are likely to increase or decrease that particular patient’s use and cost of care in accordance with the patient’s risk score.

Under the current risk adjustment payment model, CMS groups the International Classification of Disease, Tenth Edition (ICD-10) codes into diagnostic groups, which include codes for similar medical conditions (DGs). Then, CMS combines the DGs into Condition Categories (CCs) based on similar expected costs. Next, CMS imposes hierarchies based on the severity of diseases within the CCs. Finally, once CMS applies the hierarchies, it publishes the Hierarchical Condition Categories (HCCs) in the annual rate announcement. Each HCC has an associated coefficient or weight, which is combined with the coefficients for a patient’s age and gender to determine an enrollee’s risk score. A risk score of 1.0 is assigned for CMS’ baseline assumption of cost of care for a beneficiary. The risk adjustment model allows for deviations from that score of 1.0 based on a beneficiary’s risk. For example, in the risk adjustment model, a patient who is assigned a risk score of 1.0 is expected to incur costs for items and services that are equal to those of the average Medicare beneficiary, while a patient with a risk score of 2.0 is expected to cost twice as much as an average Medicare beneficiary.

The Medicare Advantage payment model also incorporates a percentage downward adjustment to account for the differences in coding patterns in the traditional Medicare and Medicare Advantage programs, known as the “coding intensity adjustment.” By law, CMS must apply the coding intensity adjustment to Medicare Advantage risk scores in the amount of 5.9%.2 CMS may decide to take a reduction above the statutory minimum, but to date, has not done so, and according to the Calendar Year 2024 Advance Notice of Methodological Changes for Medicare Advantage Capitation Rates and Part C and Part D Payment Policies (the Advance Notice), plans to take the same 5.9% reduction in 2024 as it has historically. The risk adjustment payment methodology is intended to ensure that plans and providers receive fair compensation for the cost of services rendered to all types of beneficiaries and are not incentivized to avoid enrolling and treating patients with more significant or costly conditions as a cost-saving measure.