CMS Pub. 100-16, ch. 7, § 70.4

Starting in 2006, with the implementation of the Part D program, CMS introduced a

second major HCC-based risk adjustment model. Created with the passage of the

Medicare Modernization Act (MMA) of 2003, the Medicare Part D Prescription Drug

benefit became the second major Medicare capitated payment system. CMS developed

the Part D RxHCC risk adjustment model to apply to monthly capitated payments to both

Medicare Advantage (MA-PDs) and standalone prescription drug plans (PDPs). The Part

D RxHCC risk adjustment model implemented in 2006 was developed using a structure

similar to the CMS-HCC model, in that it included demographic and diagnosis

information clustered into hierarchical condition categories. CMS obtains diagnoses for

all Medicare beneficiaries from either fee-for-service claims or Medicare Advantage

reporting. In 2011, CMS implemented an updated Part D RxHCC risk adjustment model,

incorporating program data derived from prescription drug event (PDE) data. The data

used to calibrate this updated model was more recent cost and utilization data, resulting

in a model that reflects more recent drug cost and utilization patterns.