What Is in a Diganosis Code – More Than You Might Think for Medicare Advantage Payments

By Rolf Lowe, Esq.

Wachler & Associates, PC

The International Classification of Diseases (ICD) used by both providers and payers to identify diagnoses and procedures was developed by the World Health Organization and has been in place since the mid 1970’s. The utilization of ICD codes for various aspects of delivering healthcare services has increased since their introduction and is now an integrated part of many payment and reimbursement models. The Centers for Medicare & Medicaid Services (CMS) collects information on the ICD codes as a condition of payment, including it as an area of information to provide on the CMS 1500 forms providers use for reimbursement. CMS also relies on the ICD codes for the payments it makes to Medicare Advantage Plans (MA plans). The ICD codes are part of a system used by CMS based on actuarial evidence to structure the payments it makes to MA Plans for their enrolled beneficiaries in a capitated payment model.

The principle of “actuarial equivalence” originates in how CMS is required to calculate payments to MA plans. Unlike traditional Medicare or fee-for-service payment models, MA plans are paid a monthly capitated per-beneficiary fee by CMS to cover the cost of services that CMS calculates may be needed by the beneficiary. In the simplest of terms, the Medicare statute requires CMS to annually adjust those monthly, per-capita payments to reflect what traditional, fee-for-service Medicare paid in a base year for a beneficiary population modeled to be “actuarially equivalent” to the MA plan’s beneficiary population, utilizing “risk scores” and “risk factors” to determine risk-adjusted payments to the MA plans

In order for this model to function, CMS relies on MA plans to report accurate diagnosis codes. CMS regulations require MA plans to certify the accuracy of the information they report to CMS, including diagnosis codes. In turn, MA plans on rely on the ICD codes supplied providers. While the ICD codes are used for many aspects in the delivery of care, inaccurate reporting of the codes by MA plans have the potential to lead to a violation of CMS’ overpayment rules. The overpayment rules are implicated in situations where the ICD codes reported by MA plans are not supported by documentation in the beneficiary’s medical record. CMS verifies the accuracy of the reporting of the ICD codes by MA plans through audits of provider records.

While providers of services and supplies are not impacted directly by the failure of the MA plans to accurately report ICD codes, like anything there is the potential of a downstream effect. Where the reporting of accurate ICD codes or updating ICD codes are conditions of payment under provider participation agreements, providers may be subject to increased scrutiny of the records and the corresponding ICD codes submitted in their claim and/or encounter data. The result of inaccurate record keeping and reporting by a provider has the potential to lead to an overpayment or claim denial by a MA plan. As a result, providers should make sure to regularly review their medical and billing records for accuracy, and update their patient records with any new information concerning their patients enrolled in MA Plans.