§ 512.645 Determination of reconciliation target prices.
(a) Risk adjustment factors. CMS risk adjusts the preliminary target prices calculated in accordance with § 512.640 at the beneficiary level using the following: a CJR-X Hierarchical Condition Category (HCC) count risk adjustment factor, an age bracket risk adjustment factor, a beneficiary economic risk adjustment factor, and the additional factors specified in paragraph (a)(6) of this section, and at the hospital level using a hospital bed size risk adjustment factor and a safety net hospital risk adjustment factor.
(1) The CJR-X HCC count risk adjustment factor uses five variables, representing beneficiaries with zero, one, two, three, or four or more CMS-HCC conditions based on a 180-day lookback period that begins 181 days prior to the anchor hospitalization or anchor procedure and ends on the day prior to the anchor hospitalization or anchor procedure.
(2) The age bracket risk adjustment factor uses four variables, representing beneficiaries in the following age groups as of the first day of the episode:
(i) Less than 65 years.
(ii) 65 to less than 75 years.
(iii) 75 years to less than 85 years.
(iv) 85 years or more.
(3) The beneficiary economic risk adjustment factor uses two variables, representing beneficiaries that, as of the first day of the episode:
(i) Meet one or more of the following economic measures:
(A) National CDI above the 80th percentile.
(B) Eligibility for the low-income subsidy.
(C) Eligibility for full Medicaid benefits.
(ii) Do not meet any of the three economic measures in paragraph (a)(3)(i) of this section.
(4) The hospital bed size risk adjustment factor uses four variables based on the CJR-X participant's characteristics:
(i) 250 beds or fewer.
(ii) 251-500 beds.
(iii) 501-850 beds.
(iv) 851 beds or more.
(5) The safety net hospital risk adjustment factor is based on the CJR-X participant meeting the safety net hospital definition in § 512.605.
(6) Additional beneficiary level risk adjustment factors represent the presence or absence in beneficiaries, based on a 180-day lookback period that ends on the day prior to the anchor hospitalization or anchor procedure, of each of the following conditions:
(i) Ankle procedure or reattachment, partial hip procedure, partial knee arthroplasty, total hip arthroplasty or hip resurfacing procedure, and total knee arthroplasty.
(ii) Disability as the original reason for Medicare enrollment.
(iii) Prior post-acute care use.
(iv) HCC 17: Cancer Metastatic to Lung, Liver, Brain, and Other Organs; Acute Myeloid Leukemia Except Promyelocytic.
(v) HCC 36: Diabetes with Severe Acute Complications.
(vi) HCC 37: Diabetes with Chronic Complications.
(vii) HCC 48: Morbid Obesity.
(viii) HCC 125: Dementia, Severe.
(ix) HCC 126: Dementia, Moderate.
(x) HCC 127: Dementia, Mild or Unspecified.
(xi) HCC 151: Schizophrenia.
(xii) HCC 155: Major Depression, Moderate or Severe, without Psychosis.
(xiii) HCC 199: Parkinson and Other Degenerative Disease of Basal Ganglia.
(xiv) HCC 224: Acute on Chronic Heart Failure.
(xv) HCC 225: Acute Heart Failure (Excludes Acute on Chronic).
(xvi) HCC 226: Heart Failure, Except End-Stage and Acute.
(xvii) HCC 238: Specified Heart Arrhythmias.
(xviii) HCC 253: Hemiplegia/Hemiparesis.
(xix) HCC 267: Deep Vein Thrombosis and Pulmonary Embolism.
(xx) HCC 280: Chronic Obstructive Pulmonary Disease, Interstitial Lung Disorders, and Other Chronic Lung Disorders.
(xxi) HCC 326: Chronic Kidney Disease, Stage 5.
(xxii) HCC 327: Chronic Kidney Disease, Severe (Stage 4).
(xxiii) HCC 383: Chronic Ulcer of Skin, Except Pressure, Not Specified as Through to Bone or Muscle.
(xxiv) HCC402: Hip Fracture/Dislocation.
(b) Timing and data used for risk adjustment. CMS uses 3 years of baseline period data, as described under § 512.640(b)(2)(i) and (ii), to compute all risk adjustment factors prior to the start of the performance year through a linear regression analysis.
(c) Risk adjustment coefficients. CMS produces exponentiated coefficients through the annual linear regression analysis to determine the anticipated marginal effect of each risk adjustment factor on episode costs. CMS transforms, or exponentiates, these coefficients, and the resulting coefficients are the beneficiary and hospital-level risk adjustment factors, specified in paragraphs (a)(1) through (6) of this section, that CMS uses during reconciliation for the subsequent performance year.
(d) Applying risk adjustment at reconciliation. At the time of reconciliation, CMS risk adjusts the preliminary target prices calculated under § 512.640 by applying the applicable beneficiary level and hospital-level risk adjustment factors specific to the beneficiary in the episode, as set forth in paragraphs (a)(1) through (6) of this section.
(e) Normalization factor update. CMS normalizes the risk-adjusted preliminary target prices at reconciliation so that the average of the total risk-adjusted preliminary target price does not exceed the average of the total non-risk adjusted preliminary target price.
(1) The final normalization factor at reconciliation—
(i) Is the mean benchmark price for each MS-DRG/HCPCS episode type and region divided by the mean risk-adjusted benchmark price for the same MS-DRG/HCPCS episode type and region.
(ii) As applied, cannot exceed ±5 percent of the prospective normalization factor (as specified in § 512.640(b)(6)).
(2) CMS applies the final normalization factor to the previously calculated, beneficiary-level, risk-adjusted preliminary target prices specific to each region and MS-DRG/HCPCS episode type.
(f) Trend factor update. CMS calculates a multiplier for each MS-DRG/HCPCS episode type and region and applies the multiplier at reconciliation to the most recent calendar year of the applicable baseline period. CMS calculates the multiplier as the average regional capped performance year episode spending for each MS-DRG/HCPCS episode type divided by the average regional capped baseline period episode spending for each MS-DRG/HCPCS episode type.
(1) CMS caps the retrospective trend factor so that the maximum difference cannot exceed ±3 percent of the prospective trend factor (as specified in § 512.640(b)(7)).
(2) CMS applies the capped retrospective trend factor to the previously calculated normalized, risk adjusted preliminary target prices specific to each region and MS-DRG/HCPCS episode type, as specified in paragraph (e)(2) of this section.
(g) Payment system changes. CMS revises preliminary target prices, as calculated under § 512.640, when determining reconciliation target prices to account for calendar year and fiscal year payment rule updates that occur after preliminary target prices are determined.
(h) Quality adjustment to discount factor. CMS calculates a composite quality score as specified at § 512.635(b) and adjusts the discount factor specified at § 512.640(b)(8) to calculate the reconciliation target prices, which are compared to performance year spending at reconciliation, as specified in § 512.650(c) as follows:
(1) A CJR-X participant with excellent composite quality scores, defined as composite quality scores greater than or equal to 17.1, receives a 0.0 discount factor.
(2) A CJR-X participant with good composite quality scores, defined as composite quality scores greater than or equal to 12.1 and less than or equal to 17.0, receives a 1.0 discount factor.
(3) A CJR-X participant with acceptable composite quality scores, defined as composite quality scores greater than or equal to 6.1 and less than or equal to 12.0, receives a 2.0 discount factor.
(4) A CJR-X participant with below acceptable composite quality scores, defined as composite quality scores less than or equal to 6.0, receives a 2.0 discount factor and are ineligible to receive a reconciliation payment, as specified in § 512.650(d).