Medicare Advantage Risk Adjustment and Denial Rates Under Federal Review

The Centers for Medicare & Medicaid Services (CMS) uses a risk‑adjustment system to modify capitated payments to Medicare Advantage (MA) plans based on beneficiaries' health status, age and diagnoses. The CMS‑Hierarchical Condition Category model assigns risk scores that influence plan funding and aim to discourage plans from selecting only healthier enrollees.

Separately, the U.S. Department of Health and Human Services Office of Inspector General released a report on prior‑authorization decisions for post‑acute care in MA plans. The analysis of 19 large MA organizations covering about 29 million beneficiaries found denial rates of 12 % for skilled‑nursing‑facility admissions and even higher rates for some inpatient rehabilitation and long‑term acute‑care requests. However, approximately 95 % of these denials were overturned on appeal, raising concerns that many initial refusals may have been inappropriate. Insurers argue that appeals often include additional clinical information not available at the initial review and that prior authorization helps steer patients to appropriate care settings.