Attachment A Approved Risk Adjustment Model.docx

APPROVED RISK ADJUSTMENT MODEL

A detailed description of the risk adjustment process that will be applied to members eligible under current Medicaid eligibility criteria is as follows:

MCO payments will be adjusted based on the relative health status of each MCO's enrollees. The payment rates for all Eligibility Categories will be risk adjusted with the exception of Dual Eligibles.

The following provides a description of the risk assessment methodology that will be employed to adjust payments to MCOs.

Risk Adjustment Method The negotiated capitation rates will be risk-adjusted on a prospective basis as described below.

Risk Adjustment Model The Chronic Illness and Disability Payment System (CDPS) + Rx model will be used. In general, the most recent available version of the model will be applied, though there may be circumstances in which an older version is preferred. Concurrent weights will be used to develop the risk profiles of enrollees. ICD-9 based risk models were applied until such time as ICD-10 based diagnosis codes were available in the claims data. DMS converted to ICD 10 on October 1, 2015, with an indication of version on the diagnosis. There was a period of time when diagnosis codes needed to be mapped from one system to the other in order to apply the risk adjustment models.

Calibration of Risk Weights National weights were initially used, but the model will be calibrated based on Kentucky specific data starting July 1, 2020. Calibration refers to using MCO encounter and fee-for-service claims data from the Kentucky Medicaid program to develop risk weights, rather than relying on national weights or weights developed from another state's data.

Rate Cells excluded from Risk Adjustment

Dual Eligibles

Minimum Eligibility to Receive Risk Score

Minimum length of eligibility, not necessarily continuous, during the risk analysis period in order for risk score to be considered in the MCO risk adjustment calculations are the following:

• One month for infants and pregnant women

• Three months for all other rate cells Members who do not receive a risk score will be assigned the average risk score for their MCO within their rate cell and region.

Risk Score Calculation

Twelve months of FFS claims and managed care encounter data, excluding lab and x-ray, will be run through the risk model to calculate a risk score for each individual. Months of Medicaid eligibility during the 12-month analysis period are also calculated. Individual risk scores will be attributed to each MCO based on the MCO in which the person is enrolled as of a specific point in time. Raw risk scores and member months will be aggregated by rate cell, region, and attributed MCO, and relative risk adjustment scores will be calculated.

Payment Adjustment

Payment adjustments will be calculated by applying the risk adjustment scores to the contracted capitation rates by rate cell and region.

Directed Payments Since MCO directed payment obligations are a fixed amount each month, the per capita value of the settlement obligations are removed from each MCO's contracted rates prior to applying risk adjustment, and are added back in after applying risk adjustment. Directed payments are detailed in Section 2.20 Vendor Responsibilities – Directed Payments.

Application of Risk Adjustment Factors Risk scores are calculated at the rate cell level; however, the risk scores are aggregated to the rate group level for application to the contracted MCO rates. As a result, each rate cell within a rate group will receive the same risk adjustment factor for a given MCO.

Timing and Frequency

In general, 12 months of recent, reasonably complete, incurred FFS claims and MCO encounters will be analyzed to develop the risk scores. Risk measurement periods will be set to provide at least 3 months of claims run out, though depending on claim payment speed this figure may be adjusted to balance the need for the most current information and data completeness.

Risk scores will be calculated initially based on August 1, 2026 enrollment and the resulting risk adjusted rates will be effective October 1, 2026. Initial risk scores would be calculated based on MCO claims incurred April 1, 2025 through March 31, 2026 with payments through July 31, 2026.

Generally, it is expected that risk scores will be developed semi-annually and that rates will be adjusted quarterly based for changes in enrollment distributions. Quarterly updates for enrollment distributions may be suspended in later years.

a. Calculate months of Medicaid eligibility for each member during the analysis period;

b. Attribute individual risk scores to each MCO based on the MCO in which the person is enrolled as of a specific point in time;

c. Aggregate raw risk scores and member months by rate cell, region, and attributed MCO to calculate a relative adjustment score. Dual eligibles will be excluded from risk adjustment;

d. Calculate payment adjustments by applying the risk adjustment scores to the negotiated capitation rates by rate cell and region while maintaining budget neutrality;

e. Provide risk score calculation and rate adjustment up to semi-annually and enrollment update and rate adjustment up to quarterly as requested by DMS;

f. Certify the adjusted capitation rates in accordance with generally accepted actuarial principles and practices, for the time period requested by DMS based on appropriate eligibility groupings that may include age, gender, and eligibility status breakouts; and

g. Provide explanation of methodology and resulting capitation rates to DMS management, MCOs, and CMS, which may include participating in conference calls or preparing written documentation.

h. Risk adjusted rates and certifications shall be produced by September 5 at 5 pm EST for rates effective October 1, by December 5 at 5 pm EST for rates effective January 1, by March 5 at 5 pm EST for rates effective April 1, and by June 5 at 5 pm EST for rates effective July 1. Risk adjustment deliverables include an excel workbook summarizing the risk adjustment with separate worksheets for the Non-ACA and ACA populations, separate MCO-specific workbooks with separate worksheets for the Non-ACA and ACA populations, and a certification document summarizing the risk adjustment process and results. All components of the deliverable must be submitted by the required deadline. For each business day the risk adjustment deliverables are not received by the deadline, DMS may assess a penalty of $500.00 per business day.

i. Evaluate effectiveness and adequacy of the risk scoring and risk adjustment methodologies and recommend changes based on best practices.

j. State-Directed Payments to state hospitals shall be incorporated into the MCO rates. A separate vendor shall process encounter data and determine the discharge counts for determining the directed payments. These directed payments shall then be incorporated in the Per Member Per Month (PMPM) by rate cell. Vendor shall be responsible for certifying the total amount of state directed payments. This includes validation of the underlying utilization counts associated with the add-on calculations in order to determine that the data and methodology used to determine the add-on amounts is consistent with the data and methodology used for counting utilization for the actual C27 and CY 28 payments. State directed payments to state hospitals are detailed in Section 2.20 Vendor Responsibilities – Directed Payments.

k. State-Directed Payments for HB320 passed during the 2019 legislative session shall be incorporated into the MCO rates. A separate vendor shall process encounter data and determine the discharge counts for determining the directed payments. These directed payments shall then be incorporated in the PMPM by rate cell. Vendor shall be responsible for certifying the total amount of state directed payments. This includes validation of the underlying utilization counts associated with the add-on calculations in order to determine that the data and methodology used to determine the add-on amounts is consistent with the data and methodology used for counting utilization for the actual CY 27 and CY 28 payments.