Unfairness toward rural beneficiaries in Medicare's hierarchical conditions categories score

This study examined whether Medicare's Hierarchical Condition Category (HCC) score, a widely used risk adjustment tool that determines healthcare payments, accurately captures the clinical risk of rural beneficiaries compared to their urban counterparts. By comparing observed mortality rates and predicted-to-observed spending ratios across deciles of the HCC score, the researchers found that the HCC model underpredicts mortality while overpredicting spending for rural beneficiaries, whereas it is well-calibrated for urban beneficiaries. This systematic miscalibration means that the clinical risk of rural patients is consistently underestimated by the algorithm that governs how much providers and plans are paid to care for them. 

When the HCC system underpredicts clinical risk for rural beneficiaries, it results in systematically lower risk-adjusted payments to providers and plans serving these populations, which may discourage provider participation in rural areas, limit plan offerings, and ultimately reduce access to care for the 60 million Americans living in rural communities. The study underscores a pressing need to reform risk adjustment models so that payment formulas reflect true clinical need rather than patterns of healthcare utilization, which are themselves shaped by geography and access.