How are RAF Scores Calculated?

RAF Scores
What You Need to Know

  • The more accurately and completely you represent the disease burden of your patient in your documentation, the greater your monthly capitation and the lower the chance of clawbacks.
  • The relative RAF adjustments for different disease burdens are not necessarily intuitive. An amputated pinky toe carries triple the capitation adjustment of controlled diabetes.
  • Make sure you see your patients at least once every 12 months to keep them healthy and address all their chronic illnesses. Otherwise, CMS won’t know their disease burden while calculating their capitation—they wipe the disease burden slate clean each year, so you’ll be covering their healthcare costs with less money.
  • Because of advantageous differential capitation rates, assuming the care of patients in the nursing home is sustainable and well worthwhile.



Medicare Advantage seems overwhelming—impenetrable even. But as far as third party payer systems go, it’s your last chance to practice sustainably and with autonomy.


Chances are, you’ve been drowned in “educational” presentations from your employer or insurer about the program.


They tell you what they think you need to know for THEM to succeed.


This post is about what you actually need to know for YOU to succeed—presented by a peer who has been there.


The executive summary above represents the absolute basics. But to really succeed and take advantage of all the strategies I’m going to be sharing with you in the months to come, you need to know more about how Medicare Advantage works.


Now stay with me.


This is probably the longest entry I will ever post.


Keep your seatbelt fastened, your arms and legs inside the vehicle at all times.


You may experience brief periods of discomfort.


But it’ll be worth it.





The Government Pays The Insurer

A Medicare Advantage insurer receives a monthly payment from the Federal Government, the amount of which is specifically calculated for each beneficiary.

In exchange, the insurer assumes the financial responsibility of paying for the covered healthcare expenses of that specific beneficiary for that month.


How Much Does the Government Pay?

The amount the government pays is calculated by a formula—multiplying the government’s “county rate” by the patient’s risk adjustment factor or RAF score.

County rate x RAF score = Monthly capitation rate.


County Rate

The county rate is determined by CMS and published yearly through their website on an enormous spreadsheet called a “rate book”. You can download the rate book and look up your county if you like. The county rate usually runs from $800-$1200, with urban areas carrying the higher amounts.


RAF Scores

The RAF score is the sum of “conversion factors”—decimals that can adjust the county rate up or down.

There are two broad categories of these conversion factors—the demographics and the disease burden of the beneficiary.



Every 1-2 years, CMS releases a table of conversion factors for patient demographics through it’s website. The numbers are based on estimated cost data as well as deliberate policy choices. The “conversion factor” for demographics usually range from 0.6-1.2—based on age, sex, whether the patient is in a nursing home and why they’re eligible for Medicare in the first place.

In general, the more vulnerable to illness you would expect a person to be, the higher the demographic conversion factor. That’s not totally true, but pretty close.


Disease Burden

A patient’s disease burden is solely based on the ICD-10 diagnostic codes CMS receives when bills are submitted for “qualified encounters”. Such encounters consist of any face-to-face visits with the patients. Pretty much every diagnostic code used to calculate a RAF score must be submitted over a clinician’s signature—and the clinician is ultimately responsible for their accuracy.

That’s why everyone from your EHR to your administrator to your insurer pesters you about whether or not it’s ok with you to submit a given code.

Codes mean revenue.

And you’re on the hook for their accuracy.

Even if you’re not the one pocketing the cash.


Diagnostic Codes

Not all diagnostic codes are associated with increased revenue—most aren’t.

When a diagnostic code “has risk,” that means it is associated with a conversion factor—and it’s presence will figure into increasing the monthly payments from the government to the insurer.

Government actuaries determine whether a diagnostic code is associated with a “conversion factor” and the how high that “conversion factor” is. That information is released yearly (scroll down the link to page 78).

You’ll note that different medical conditions can have markedly different “conversion factors” depending on where the beneficiary resides and why they’re qualified for Medicare.

HIV in an institutional setting carries five times the risk compared to someone living in the community, gram negative pneumonia in the institutionalized carries 1/8th.

Think about it this way.

In general and once the data works through the system, a patient with stable angina (RAF 0.14) will increase the patient’s monthly capitation by 14%, a seizure disorder (RAF 0.31) by 31%, a gangrenous ulcer (RAF 1.4) by 140%. Remember, outside of some hierarchical adjustments, all the RAF scores are additive.

Though the RAFs that CMS associates with each disease condition can be adjusted year to year, they don’t really change that much.


Which diagnostic codes “carry risk” is not always intuitive.

Benign hypertension carries no risk.

An amputated pinky toe caries three time the risk as uncomplicated diabetes.

Go figure.



Time Lags

It takes a while for CMS to do it’s calculations. Broadly speaking, diagnostic codes are collected and capitation rates adjusted for each patient every 6 months, so it can be some time before a submitted diagnostic code can actually affect the capitation rate.

Also, those diagnostic codes will only affect capitation rates for a total of 12 months, after which they drop out of any calculation.

This lag carries enormous implications for Medicare Advantage success and lends itself to a number of high value strategies that I’ll be discussing in this space over time.
Monthly Capitation = County Rate x (Demographics + Disease Burden)

Add all the “conversion factors” together—demographics plus individual disease codes, then multiply that sum by the county rate–the result is the monthly capitation for that patient.

Understand though, if there’s no disease burden codes associated with a given patient, then the only RAF “conversion factors” available to adjust the capitation rate are the ones for demographics.
Totally Hypothetical Person

There’s a patient residing in Texas county, Missouri, lets call her Rita June. According to the CMS spread sheet, Texas county has a “county rate” of $1000. She’s a 94 year old female who lives at home and who is eligible for Medicare due to age (demographic conversion factor 0.85) who has uncomplicated diabetes (0.18), stable angina (0.14), schizophrenia (0.61), dementia (0.00!!!!) and an amputated toe (0.55!).

In exchange for assuming the financial responsibility for the cost of Rita June’s healthcare for a month, the Federal Government is going to pay her Medicare Advantage insurer $1000 [for her county of residence] x (0.85 + 0.18 + 0.14 + 0.61 + 0.55) [the sum of her RAFs].

$1000 x 2.33 = $2330

That’s how much the insurance company receives from Medicare to pay for all her covered medical expenses for one month.

Plus a Little Adjustment . . .

That $2330 can be adjusted up or down by up to five percent based on meeting the quality metrics the insurer is constantly vexing you about.



It’s All On You

But just suppose Rita June’s clinician failed to get her risk codes submitted. Her capitation calculation would be $1000 x (0.85 for demographics alone) or $850.

$850 vs $2330

Two different capitations, yet the medical expenses to be covered are the same.

And you’re locked into that rate for at least six months.

Six months of lost capitation that you can never recapture.

See why everybody is pestering you for risk codes?

And if you’re taking some of that risk, shouldn’t you be pestering yourself?




The World According to Rita June’s Insurer

Fully coded, if Rita June’s care costs for the month are greater than $2330, her insurer pays the difference out of their own pocket. If you agreed to take some of the financial risk—you’d pay a share too.

If her care costs are less, the insurer keeps the difference. If you agreed to take some of the financial risk—you keep a share too.

Why would the insurer ask you to share the risk?

Because for a half-century they’ve tried and failed at top-down cost control through prior-auths and pre-certs. Only risk-sharing directly with a patient’s trusted prime can effectively  hold down costs and deliver appropriate care effectively.


I’ve seen it personally.  Up close.


So did my patients.


And they LOVED IT!


And so will yours.


There now, that didn’t hurt that much—did it?



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