What Is Medicare Risk Adjustment?


Medicare risk adjustment is the term for how Medicare pays managed care plans. Medicare decides how much to pay each managed care plan based on the diagnoses their patients received.

Why Risk Adjustment

Medicare introduced diagnosis-based payments in 2000 in hopes of providing managed care plans with more accurate and timely payments. Previously, payments were made on general geographic and demographic information, which resulted in inaccurate payments.

Determining Payments

Medicare managed care providers track and report patient diagnoses to Medicare. There is a specific diagnostic code for each illness and the severity of each illness. Medicare has developed four payment models to increase accuracy: new enrollee, end stage renal disease, long-term care institutional and a community model.


Managed care plans must report data at least quarterly. They do this through the Risk Adjustment Processing System.. Extensive training on this system is available through the Centers for Medicare and Medicaid Services.

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