As Medicare-managed care health plans (Medicare Advantage (MA) plans) expand—especially in the past five years—providers are more regularly affected by “risk adjustment.” When done properly, the risk adjustment model has great potential to enhance the quality of patient care. Unfortunately, risk adjustment is also susceptible to fraud by the proverbial “bad apple.”

Risk Adjustment Basics

Risk adjustment is a modified version of the traditional capitation system. Under traditional capitation, a managed care organization or provider group is paid a fixed amount per member per month (PMPM) to pay for all services the member requires during that period. Traditional capitation sets the PMPM rate based on demographic factors such as the member’s age, gender, and geographic location.

Risk adjustment enhances traditional capitation by adding payments for patients who are being actively treated for certain diseases and conditions known to be expensive to treat. Risk adjustment classifies patient sickness using hierarchical condition categories (HCCs), which are groups of related diagnosis codes. HCCs are similar to diagnosis-related groups (DRGs) or ambulatory payment classifications (APCs) used for hospital reimbursement, but they are based on diagnosis codes rather than procedure codes. Individual patients may fall into multiple HCCs. For each additional HCC, the MA plan is paid an extra amount.

Unlike traditional managed care, where there is a strong financial incentive to seek out only healthy members, the risk adjustment model rewards managed care organizations and provider groups to care for sick members, as well. They can see a significant financial reward if they actively manage those sick members to reduce health care costs.

Risk Adjustment Fraud: “Upcoding” DxCodes

The current design of the risk adjustment system largely relies on MA plans to police themselves. MA plans are responsible for determining which diagnosis codes its members were treated for in the prior year, using a combination of traditional claims data and other medical documentation (such as the patients’ medical charts). The plan then submits the diagnosis codes to the Centers for Medicare & Medicaid Services (CMS) to get the increased risk adjustment capitation payments.

Unethical MA plans and vendors take advantage of the system’s structure to essentially “upcode” the diagnoses they submit to CMS. They do this by submitting a risk adjustment claim to CMS for a diagnosis the member either did not have or was not treated for in the year in question. In such cases, “risk adjustment” may be offered as an explanation for why patient medical records should be changed or “supplemented” (sometimes a year or more after the patient was treated). Or the MA plan, or its vendor, may suggest that a provider call a patient in for an office visit so certain diagnosis codes can be “captured” for “risk adjustment purposes” (regardless of whether the patient actually needed any medical treatment).

CMS rules are clear that a risk adjustment claim may be submitted only if the diagnosis meets ICD-9-CM standards and there is documentation in the medical record that the member was treated face-to-face by a qualified provider in the year questioned.

Common schemes used to upcode diagnoses for risk adjustment purposes include the following:

Coding from Problem Lists: CMS rules explicitly state that a “problem list” may be used only to code a diagnosis if it is “comprehensive and show[s] evaluation and treatment for each condition that relates to an ICD-9-CM code on the date of service.” It is improper to submit risk adjustment claims for diagnoses that are merely mentioned in the member’s problem list if the diagnoses were not treated or considered by the provider during that visit.

Improper Linkages: The risk adjustment system pays MA plans a higher capitation rate when certain conditions are “linked.” For example, a patient may have both diabetes and nephropathy. CMS will pay the MA plan more if the diabetes caused the nephropathy because diabetes with renal complications is generally significantly more severe than diabetes without complications. Diabetes without complications, which falls within HCC 19, has an average value of $1,500 per year. In contrast, diabetes with renal manifestations, which falls within HCC 15, is valued at over $4,500 per year.

For an MA plan to submit a linked diagnosis code to CMS, the provider must document the linkage between the two conditions in the medical record. It is improper for an MA plan or vendor to assume the two conditions are linked.

Coding from Test Results or Prescriptions: CMS prohibits the submission of risk adjustment claims based solely on laboratory or radiology test results, drug prescriptions associated with particular diagnoses, or durable medical equipment (DME) services. Nonetheless, certain MA plans and vendors include diagnosis codes in their risk adjustment submissions even though they appear only on those invalid sources of documentation.

Chronic Conditions: While it is true that some conditions (such as Parkinson’s) never go away, this does not mean that the diagnoses can be submitted to CMS every year. Risk adjustment rules explain that a condition may only be submitted for reimbursement if it is actively treated (or affects other treatment) in the year in question. It is not enough that the patient was diagnosed or treated for the condition at some point in the past.

Targeted Coding: Some organizations pressure coders to focus on identifying high-value diagnoses, rather than coding just what is in the medical record. Some common high-value targets include:

• Cachexia/Malnutrition (HCC 21) – value of $7,800 per year
• Old myocardial infarction (MI) (HCC 83) – $2,200 per year
• Diabetes with complications (HCC 15) – $4,600 per year
• Major depression (HCC 55) – $3,200 per year

Know the Red Flags

If a coder involved in chart reviews or an audit related to risk adjustment sees any of these activities, there is a strong likelihood the coder is dealing with fraud. If someone tells a coder to use a diagnosis code that doesn’t meet ICD-9-CM standards and says it is OK because “risk adjustment coding is different than regular coding,” that is a major red flag indicating the health plan or vendor is engaged in fraud.

At its core, risk adjustment coding is “regular coding,” but stricter. Even where a diagnosis meets traditional ICD-9-CM standards, it may not be submitted for risk adjustment purposes unless the diagnosis is: (1) documented by the provider in the medical record as having been treated or as affecting the patient’s treatment; (2) made during a face-to-face encounter; (3) submitted to the MA plan from a qualified provider type; and (4) made during the specified calendar year.

Risk Adjustment Fraud and the False Claims Act

At a May 31, 2012 MA compliance conference, federal prosecutor Robert Trusiak noted that MA fraud—in particular risk adjustment fraud—is a “hot button issue” for the Department of Justice (DOJ). Trusiak further noted that MA plans face potential liability under the federal False Claims Act (FCA) for false risk adjustment claims, even when the upcoding or other fraud was perpetrated by a vendor on the plan’s behalf.

The FCA says any person who submits a false or fraudulent claim to the United States or causes someone else to submit a false or fraudulent claim may be liable for three times the amount of the false claim, plus an additional penalty of up to $11,000 for each false claim. To encourage whistleblowers to report fraud, the FCA contains a qui tam provision awarding whistleblowers 15-30 percent of what the government recovers as a result of whistleblower lawsuits they file against individuals and entities committing fraud.

The government has already begun enforcement against unscrupulous MA plans attempting to game the risk adjustment system. In United States v. Janke, the government sued an MA plan under the FCA for submitting upcoded (or non-existent) diagnosis codes for risk adjustment payments. The DOJ settled with the MA plan and its owners for $22.6 million in November 2010.

Be Cautious and Speak Up

As Trusiak cautions, the FCA targets not only the person or organization submitting a false claim, but also anyone who “causes the submission” of a false claim. This means that MA plans are not the only ones who face potential liability under the FCA for false or fraudulent risk adjustment claims. Hospitals or physician groups could be liable, as well, if they submit false information about their MA patients’ diagnoses to MA plans and that false information is used to submit a false risk-adjustment claim to CMS.

To avoid this risk, you should ask to review rules used by vendors when those vendors are identifying “new” diagnoses. Don’t hesitate to speak up if the standards being used by an outside reviewer don’t line up with the established CMS coding rules your organizations are using. Providers should insist on reviewing any code submissions made for their patients—especially when an MA plan or vendor has reviewed the providers’ medical record and identified new diagnoses—to ensure the patient actually had that particular diagnosis and was treated for it during the visit. Coders, administrators, and providers can all take steps to prevent or stop risk-adjustment fraud.

Mary A. Inman, JD, and Timothy P. McCormack, JD, are partners at Phillips & Cohen LLP, a law firm representing whistleblowers (www.phillipsandcohen.com). Whistleblower cases brought by the firm involving Medicare and Medicaid fraud, and other types of fraud against the government, have returned more than $8.5 billion in civil settlements and related criminal fines to federal, state, and local governments.

The concept of risk adjustment was “born” upon passage of the Balanced Budget Act of 1997 and refined by the Beneficiary Improvement Act of 2000, which mandated that the Centers for Medicare & Medicaid Services (CMS) implement risk adjustment for Medicare Advantage organizations (MAOs) in 2004 and achieve 100 percent risk-adjusted payments by 2007. To achieve this, CMS uses the CMS-Hierarchical Condition Category (HCC) model. Risk adjustment has also been adopted by a number of states using other models, such as the Chronic Illness Disability Payment System (CDPS), Episode Risk Groups (ERGs), Diagnostic Cost Group (DCG), and others—mainly because state populations are more diverse than the rather narrow group of Medicare-eligible patients.

Why Should a Coder Care About Risk Adjustment?

CMS requires accurate and complete diagnosis coding, and for all coding to be done in accordance with official guidelines and CMS regulations. If that’s not a good enough reason, think of your patients.

Great documentation and accurate diagnosis data provides information for care management activities, trends in chronic illness among populations, and increased communication among specialists treating the same patient. Conversely, poor documentation and diagnosis coding can lead to missed diagnoses (and lack of treatment), poor communication among treating physicians (leading to duplicate or contradictory treatment), and even incorrect diagnoses (like coding a “rule-out” as a confirmed condition). Incorrect diagnoses can follow a patient for the rest of his or her life and potentially exclude him or her from obtaining life or health insurance in the future.

How Can a Coder Keep Risk Adjustment Models Straight?

Here’s the best news: You don’t have to!

Coding supports all risk adjustment models while documentation and guidelines support coding; but because payment generally revolves around CPT® and HCPCS Level II coding, ICD-9-CM coding tends to be put on the back burner. CMS recognizes this and encourages MAOs to educate coders, physicians, and facilities about the need for correct and complete diagnosis information.

Here’s more good news: Becoming a better diagnosis coder NOW will help you in the transition to ICD-10-CM. The ICD-10-CM guidelines are similar to those for ICD-9-CM, so take advantage of the one-year delay to become a great diagnosis coder.

Here’s how:

1. Read the Official ICD-9-CM Guidelines for Coding and Reporting.
2. Skip the cheat sheets. Use the alphabetic index AND tabular listing every time (even if you THINK you know the code), and follow all of the listed rules.
3. If you need clarification, go to the American Hospital Association’s AHA Coding Clinic for ICD-9-CM.
4. Learn or brush up on anatomy and physiology (A&P) to help you understand when something doesn’t make sense for the condition you’re coding. This will also help you determine when you need to ask the physician to provide more clarity about the condition.

How Can Coders Help Providers Document Dx Better?

Providers who document well are a coder’s dream. Here are some things you can do to make that dream come true:

Make sure all of the required technical elements are present in every progress note. If required elements are not present, the auditor doesn’t have to go any further and can fail the note on a technicality. Required elements include:

• A legible signature with credentials
• Patient name on each page
• Date of service is evident
• Note is complete and legible (meaning someone coming in and auditing this note would not have to ask questions). You don’t want to fail an audit because the note cannot be deciphered.

Print out a few progress notes from your electronic health record (EHR). In many cases, the note you see when you’re coding from the EHR is not the same as the note the auditor sees printed out from your EHR. Audit some notes from the printed version or whatever version you provide to those who request medical records. Look for contradictory information and laundry lists of codes dating back to when the patient was in utero not supported in the documentation on that date of service. Use that information to provide feedback to physicians, managers, compliance officers, or whoever else might need to know in your organization.

Stress descriptive documentation. The Official ICD-9-CM Guidelines for Coding and Reporting, section IV.K, instructs, “Code all documented conditions that coexist at the time of the encounter/visit, and require or affect patient care treatment or management.” Remind physicians that simply listing a condition in the progress note is not necessarily sufficient to support that the condition is current. The progress note must support the diagnoses by showing evidence they were monitored, addressed, assessed, treated, or evaluated. Providing this information not only allows you to capture the diagnosis codes, it can help support medical necessity by showing what, how, and why the listed conditions affected the provider’s medical decision-making during that encounter.

Pay attention also to generic diagnoses such as chronic obstructive pulmonary disease (COPD), congestive heart failure (CHF), pain, and others. Providers are creatures of habit and may default to a generic diagnosis when a more descriptive diagnosis may be more appropriate.

Introduce providers to the golden rule: “Document for others what you would have them document for you.” Remember that every patient they see has probably been seen by another provider at some point and will probably see another provider some time in the future. Just like receiving good documentation with a solid history from the patient’s previous provider is helpful in diagnosing and treating the patient now, their good documentation will help another provider give great patient care in the future.

History versus current condition. When a physician documents “history of,” he or she might mean a condition that is chronic and is being treated, but causing no symptoms. Unfortunately, “history of” to a coder (and an auditor) means the condition no longer exists.

On the other end of the spectrum, many providers will document “breast cancer” to describe a patient who had a mastectomy in 1979 and has had no evidence of recurrence. It would be incorrect to code 174.9 Malignant neoplasm of breast (female), unspecified because there is no evidence of current disease.

Teach providers to document the timing of the disease process clearly so there is no question as to whether it is historical or current.

Rule-outs are dangerous! Rule-outs, probable, or possible diagnoses are not to be coded per outpatient rules. To avoid confusion and give coders something to code, providers should document the symptoms or reason the test is being ordered.

Remind your providers that CODERS MAY NEVER ASSUME. Everything coded needs to be spelled out and supported in the progress note for that date of service. Just because the provider knows the patient has a leg ulcer and that leg ulcer was caused by diabetes does not mean the coder can code it. Causality must be documented clearly in every note on every date of service (for example: “diabetic ulcer on the patient’s right heel”).

Give positive feedback when providers get it right! Providers tend to be high achievers. They are often motivated to provide excellent patient care by making their records complete and meaningful. We all like to receive credit for a job well done.

Serine A. Haugsness, CPC, is a coding analyst at Buckeye Community Health Plan, with risk adjustment and coding education as a primary responsibility. She holds an associate degree in medical billing and coding and has over 11 years of health care experience. Serine is pursuing a bachelor’s degree in health care management.