Program Background

Program Background

Each year the Centers for Medicare & Medicaid Services (CMS) calculates a capitated payment, on a monthly basis, for each Medicare beneficiary enrolled in a Medicare Advantage (MA) contract based on diagnosis data previously submitted by MA Organizations to CMS. The diagnosis data and beneficiary demographics are input into the CMS-Hierarchical Condition Category (CMS-HCC) risk adjustment model. This model provides additive relative factors that are used to determine risk scores and calculate risk-adjusted payments to MA Organizations for their enrollees. 

Inaccurate or incomplete diagnosis data may lead CMS to disburse overpayments or underpayments to MA Organizations. CMS conducts an annual Part C Improper Payment Measure (IPM) activity to estimate the improper payments for the Medicare Part C program due to unsubstantiated risk adjustment data. 

Part C IPM activities are conducted each year for a sample of Medicare Part C enrollees. After defining the eligible population, a representative sample of beneficiaries from risk adjustment eligible contracts are selected for medical record review. MA Organizations submit medical record documentation to substantiate the sampled beneficiaries’ CMS-HCCs that were used to determine the amounts CMS paid to the MA Organizations for that year. Certified coders code the medical records and the findings are used to recalculate risk scores for each sampled beneficiary. The difference between the original payment risk scores and the recalculated risk scores is termed Risk Adjustment Error. Validation results from the sample are extrapolated to the broader Part C population to produce payment error estimates that meet the Payment Integrity Information Act (PIIA) of 2019 requirements for the payment year. 

Sampling Details:

Historically, the sample for each payment year is a stratified random sample of 930 beneficiaries, with a representative number of beneficiaries selected from each of three risk score groups: low, medium, and high. The eligible cohort consists of beneficiaries who were enrolled in contracts active in January of the year for which risk adjustment payments were made. The data collection period for each calendar year Part C IPM sample spans January 1 through December 31 of the previous year. 

In FY 2024, CMS selected two sampling frames reflective of the Medicare Advantage (MA) population in FY 2024. The first sampling frame was a stratified random sample of individuals with a risk-adjusted payment in CY 2022 who did not have end-stage renal disease (ESRD). To ensure the sample population is representative of the MA population in the improper payment estimate, CMS also selected a separate simple random sample of individuals who had ESRD as a separate stratum based on the Health Plan Management System (HPMS) notice, which is available as a downloadable pdf, listed below in downloads. Lastly, CMS included enrollees who received hospice care to the eligible sampling frame.   

Both the non-ESRD and ESRD cohorts consist of beneficiaries who were enrolled in contracts active in January 2022. The data collection period for calendar year 2022 Part C IPM sample spans January 1 through December 31 of 2021. Note, these are the enrollee criteria and are subject to modification as changes in MA payment policy occur.