If you want to understand why the business of caring for seniors looks the way it does today—and where it’s headed—you need to understand Medicare Risk Adjustment, or, as insiders refer to it: MRA. Not the sanitized version from a compliance seminar, but the real mechanics of how it has driven billions in capital allocation, reshaped provider business models, and created both genuine innovation and spectacular controversy over the past decade.
For value-based providers, risk adjustment isn't an administrative detail. It's the main economic engine driving the entire model. And for nearly a decade, it drove growth and margin. And then in 2022, it put itself in reverse.
Medicare Advantage (MA) plans receive capitated payments from CMS for each enrolled beneficiary. Those payments are adjusted based on the predicted health costs of each member, using a model called the CMS Hierarchical Condition Category system, or “HCC.” Sicker patients generate higher risk scores, which translate to higher per-member-per-month payments. The logic is straightforward: a plan covering a population of diabetics with heart failure should receive more than one covering a population of healthy 65-year-olds.
Risk adjustment exists to prevent cherry-picking. In theory, it neutralizes the incentive to avoid sick patients and instead rewards plans and providers for accurately documenting and managing the conditions those patients actually have.
In practice, the system created one of the most consequential financial dynamics in modern healthcare.
The mid-2010s saw an explosion of interest in MA and the risk adjustment payments attached to it. MA enrollment was climbing steadily, moving from roughly 16 million beneficiaries in 2014 toward 24 million by 2019. The economics were compelling. Plans that could accurately—or aggressively—capture diagnosis codes could generate significantly higher revenue per member without changing the care they delivered.
This period saw the emergence of an entire ecosystem built around coding optimization. Retrospective chart reviews, in-home health assessments, and coding-focused clinical workflows became standard operating procedure. Companies like Signify Health, Vatica Health, and dozens of smaller firms built businesses around helping plans and providers close what the industry euphemistically called “coding gaps.”
For value-based providers—those accepting capitated or shared-savings arrangements—risk adjustment became existential. Organizations like Oak Street Health, ChenMed, Iora Health, and agilon health built their clinical and financial models around serving complex Medicare Advantage populations. Then there were the rising regional players—mostly in the senior-dense Sunshine State of Florida—like InHealth MD Alliance, Miami Beach Medical, Millennium Medical, and Innovacare. Their revenue depended directly on accurate risk scores. Their clinical models depended on understanding the full burden of disease in their patient panels. Documentation accuracy and comprehensive coding weren't just billing exercises; they were prerequisites for allocating resources appropriately, and they tended to command significant internal investment to get the scores as "correct" as possible.
But the line between accurate coding and aggressive coding proved difficult to police. The Department of Justice began investigating major insurers for allegedly inflating risk scores. UnitedHealth, Cigna, Kaiser, and others faced lawsuits alleging systematic upcoding. A 2016 Government Accountability Office report estimated that improper payments related to risk adjustment cost Medicare billions annually. The Office of Inspector General became increasingly vocal about the gap between what patients' charts supported and what plans were submitting.
The tension was real and unresolved: the same system designed to ensure fair payment was creating powerful incentives to document more aggressively.
The pandemic briefly scrambled the risk adjustment landscape. Deferred care in 2020 meant fewer clinical encounters, fewer opportunities to document conditions, and a temporary dip in risk scores for many plans. The irony, though, was that many risk-based providers also escaped seeing patients—in their offices or in the hospital—for which they were financially responsible, and their medical loss ratios dropped and EBITDA spiked. The result was a rash of transactions at what looked like peak earnings: Miami Beach Medical sold from Gauge Capital to Sun Capital, Millennium Medical recapitalized with CDR, and Innovacare, backed by Summit Partners, invited Bain Capital into the cap stack. The numbers looked great on paper. The question was whether they would hold.
CMS implemented coding intensity adjustments and other normalizations, but the disruption exposed how dependent the MA ecosystem had become on regular, face-to-face documentation encounters.
The more consequential shift came from CMS itself. The agency first surfaced proposed changes to the risk adjustment model during a comment period in 2022, putting the industry on notice that a major overhaul was coming. In 2023, CMS finalized those changes—the most significant in over a decade. The new CMS-HCC model, version 28—or, as it came to be sinisterly referred to in industry circles, simply v28—began phasing in during 2024 with a three-year transition period. The changes were substantial. CMS eliminated or reclassified dozens of condition categories, reduced the value of certain diagnosis codes, and restructured how conditions interact in the model. The practical effect was to reduce the financial return on many of the coding practices that had become industry standard.
For value-based providers, v28 represented a meaningful revenue headwind, the strongest in a decade. Organizations that had built financial models around specific HCC capture rates had to recalibrate. Conditions that previously generated significant risk adjustment revenue—certain vascular diseases, specified heart arrhythmias, some mental health conditions—saw their coefficient values change or disappear. Industry estimates suggested the changes could reduce MA risk-adjusted revenue by 2–4% over the transition period, with some organizations facing even steeper impacts depending on their patient mix.
Simultaneously, CMS began tightening rules around in-home health risk assessments—the chart review visits that had become a primary tool for plans to capture diagnoses outside of traditional clinical encounters. New guardrails required that diagnoses from these assessments be validated by treatment or clinical action, not simply documented and submitted. This struck at one of the most lucrative and controversial practices in the MA risk adjustment ecosystem.
The regulatory message was clear: CMS intended to pay for genuinely sick patients who were receiving care, not for diagnostic documentation exercises. The provider community received it loud and clear—some through strategic repositioning, others through financial distress.
The fallout among Florida's regional value-based players was particularly instructive. Miami Beach Medical Group, which Sun Capital had acquired from Gauge Capital in that December 2020 deal, filed for Chapter 11 bankruptcy in October 2024 with $479 million in debt—94% of it owed to KKR and Sun Capital itself. The company blamed industry and regulatory headwinds combined with the highly leveraged balance sheet from its acquisition. Humana's Conviva subsidiary acquired the operations out of bankruptcy for $45 million, pennies of what had been paid by Sun. Millennium Physician Group, which CDR had recapitalized, was folded into a new joint venture with Elevance Health called Mosaic Health—a national care delivery platform combining Millennium with Apree Health and Elevance's Carelon assets, serving nearly a million patients across 19 states. And InHealth MD Alliance, the Central Florida Medicare Advantage platform that TA Associates had backed since 2019, was ultimately acquired by Millennium Physician Group in October 2025, absorbed into the Mosaic ecosystem. Three regional players that had ridden the MRA wave to premium valuations—each arriving at a very different destination, but all of them reshaped by the same set of regulatory and economic forces.
The organizations that built durable clinical models around Medicare Advantage are navigating a more complex environment than the one they entered. Several dynamics are converging.
First, Medicare Advantage enrollment continues to grow. More than 33 million beneficiaries are now enrolled in MA plans, representing over half of all Medicare-eligible Americans. The market is enormous and still expanding, which means the opportunity for value-based providers remains substantial even as the per-member economics shift.
Second, the competitive landscape has consolidated. CVS Health acquired Oak Street Health. Amazon acquired One Medical. agilon health went public and then faced significant market pressure as investors recalibrated growth expectations against margin realities. Iora Health was absorbed into One Medical before the Amazon deal. The era of easy venture-backed growth in value-based primary care has given way to a period demanding operational discipline and proof of sustainable unit economics.
Third, and most importantly, the risk adjustment changes are forcing a genuine strategic question: what is the actual source of value in a value-based care model?
Organizations that built their financial edge primarily on superior coding capture—documenting conditions more thoroughly than fee-for-service providers typically did—face the steepest adjustment. The v28 model and associated regulatory changes reduce the return on coding optimization alone. If your margin advantage was primarily a documentation arbitrage, that advantage is compressing.
Organizations that built genuine clinical capability—reducing hospitalizations, managing chronic disease effectively, keeping patients healthier—are better positioned. The economic case for value-based care was always supposed to rest on actually bending the cost curve for complex patients, not on capturing more diagnosis codes for the same patients receiving the same care.
Looking forward through 2030, three forces will shape the risk adjustment landscape for value-based providers.
The continued evolution of CMS payment methodology. The v28 transition completes in 2026, but CMS has signaled that ongoing refinement is likely. Expect continued pressure on coding-driven revenue and increasing emphasis on outcomes-based measurement. CMS is actively exploring quality-adjusted payment models that tie risk adjustment more directly to care delivery and patient outcomes rather than diagnosis capture alone. The direction of travel is unmistakable: payment will increasingly follow demonstrated value, not documented acuity.
The integration of artificial intelligence into risk adjustment workflows. AI is already transforming how organizations approach clinical documentation, predictive modeling, and care management. Natural language processing tools can identify undocumented conditions from clinical notes. Predictive models can flag patients likely to experience acute events. The organizations that deploy these tools to improve care—identifying an undiagnosed condition and then treating it—will thrive. Those that deploy them primarily to optimize coding will find diminishing returns as CMS continues to close loopholes and increase audit scrutiny.
The margin pressure driving genuine clinical transformation. This may be the most important dynamic. As risk adjustment revenue growth slows and MA rate increases moderate, value-based providers will face intensifying pressure to deliver on the original promise of the model: better care at lower total cost. Organizations will need to demonstrate that they can meaningfully reduce emergency department utilization, avoid preventable hospitalizations, manage pharmacy costs, and coordinate care across settings. The providers who survive and scale will be the ones who generate savings from clinical excellence, not financial engineering.
The past decade of Medicare risk adjustment has been a story of misaligned incentives gradually being corrected. The system created enormous financial rewards for documenting disease burden, and an entire industry mobilized to capture those rewards. Some of that activity was genuinely valuable—identifying and treating conditions that would otherwise go unmanaged. Some of it was pure arbitrage.
The next five years will increasingly separate those two categories. For value-based providers, the strategic imperative is clear: build organizations that generate economic value from making patients measurably healthier, not from describing how sick they are more thoroughly. Risk adjustment will remain the financial substrate of MA. But the providers who win the next chapter will be the ones whose risk scores are high because their patients are genuinely complex—and whose costs are low because they're managing that complexity exceptionally well.
Not everyone is staying to find out. A growing number of primary care providers, bruised by v28, thinning margins, and the operational complexity of managing risk, are walking away from capitated arrangements entirely and returning to fee-for-service. After a decade of the industry preaching the inevitability of value-based care, that's a sobering development—and a signal that the economics of taking risk have to work for the providers actually delivering the care, not just the plans and investors structuring the deals. If the next generation of risk adjustment doesn't create a sustainable model for the physicians on the front lines, the talent will simply opt out. Some already have.
That was always supposed to be the point. Whether it still can be is the open question.
