Risk adjustment is the calculation that decides how much the US government pays a private health plan for each Medicare member, based on how sick that member is. Medicare is the American government's health insurance for people over 65. Many Medicare members choose a plan run by a private insurer, called a Medicare Advantage plan. The government pays the plan a fixed amount every month for each member. Risk adjustment makes that amount larger for sicker members, because their care costs more.
Without risk adjustment, a plan would earn the most by enrolling only healthy people. With it, a plan that enrols sicker people is paid more for them. So a plan has no reason to avoid them.
Here is how the calculation works. The government's model gives each member a risk score. A score of 1.0 means the member is expected to cost the same as an average member. The score rises with age and with each long-term illness recorded for the member, such as diabetes with complications or heart failure. The monthly payment is a base amount multiplied by the score.
Take, for example, two members of a Medicare plan in Tampa, Florida, in the United States. Say the base amount is $1,100 a month. The first member is 68 and has no long-term illness on record. His score is 0.8, so the plan receives $880 a month for him. The second member is 74. Her doctor's notes from this year record diabetes with kidney damage and heart failure. Her score is 1.9, so the plan receives $2,090 a month for her.
The rule that matters is evidence. A diagnosis counts only if a doctor recorded it during a visit in that year. So risk adjustment software reads members' medical records. It uses clinical data abstraction, in which language models read free-text notes and pull out the diagnoses, with their medical codes. It finds diagnoses that were written in a note but never coded. It also finds codes that no note supports. A coder checks each finding before it is sent to the government.
The second case matters as much as the first. Government auditors check samples of records. If a plan was paid for diagnoses that the notes do not support, it must return the money. So the software must remove unsupported codes too. If a member with a long-term illness has not seen a doctor this year, the plan can arrange a visit through patient outreach automation. Risk adjustment is one part of payment integrity. Many of the coders who review these records work in India.