This is part one of a two-part series on the need to improve encounter data accuracy and completeness in California. In this post, we define encounter data and how it differs from claims data, highlighting its connection with provider financial risk-sharing and health plan revenue.
Almost three quarters of Californians with health insurance are enrolled in capitated models of care, like Medi-Cal managed care entities, commercial health maintenance organizations (HMOs), or Medicare Advantage. This care model, which uses per-member-per-month payments to finance the care of an assigned patient population, represents an alternative to fee-for-service, where care is paid for using a fee schedule and payment is issued based on quantity of services delivered. Capitated care models show promise for improving healthcare access, quality, equity, and affordability by taking a population-based approach to health management and encouraging integrated care. But the administrative data on how managed care patients across California navigate and access care — known as encounter data – is often lacking in completeness and accuracy compared to its fee-for-service counterpart, claims data.
A statewide initiative aims to address these data challenges. As the Encounter Data Governance Entity, IHA has begun to monitor, implement, and align encounter data improvement efforts across California.
Before we get into the importance of improving encounter data, let’s look at what encounter data is.
Encounter data is information that documents a person’s diagnoses, treatments and services provided by a clinician or care facility for administrative purposes. It’s the same as claims data in that it contains the same information, except for one important detail: encounter data doesn’t include cost information for each service rendered, as claims data does. That’s because encounter data serves as records of rendered services under a capitation-based payment model and is not transactional like claims are under a fee-for-service payment model.
Capitation is a per-member-per-month lump sum payment that is calculated to cover the healthcare needs of an assigned patient population. In today’s healthcare lexicon, we refer to healthcare entities as sharing financial risk when they are paid capitation, whether it is full capitation — where the payment amount is calculated to cover the full spectrum of care for the assigned population — or partial capitation, which usually is set to cover specific types of services, like services provided by hospitals or services provided by physicians and their care teams. Because capitated healthcare entities receive a flat, population-based payment rather than fee-for-service payments linked to a fee schedule, they submit encounters rather than claims. The encounter data is then often used to hold providers (or the health plans they contract with) accountable for quality performance, to inform care coordination and population health management, and to inform rate development.
Typically, clinicians generate encounter data directly into the patient’s medical record — the same way claims are generated. The data may then go to the provider organization’s billing staff before passing through to a clearinghouse, which can be tasked with aggregating, securely transmitting, validating, and tracking claims and encounters across multiple providers. From there, the encounter data goes to the managed care plan. Finally, it is submitted to the payer: Medi-Cal managed care entities submit encounter data to California Department of Health Care Services (DHCS); Medicare Advantage plans submit encounters to the Centers for Medicare and Medicaid (CMS); qualified health plan issuers serving California’s individual market submit encounters to Covered California; and a commercial HMO plan may submit encounters to a self-insured employer.
Encounter data may or may not go through multiple parties before arriving to the managed care plan, as the illustration shows; exact steps in the flow of encounter data depend on the contracting arrangement.
The capitated models of care that use encounter data are especially prevalent in California. In 2020, 10.6 million Californians with commercial insurance were covered by an HMO plan, where a provider organization (often referred to as the “delegated entity”) often receives a flat per patient per month fee for managing the care of their assigned population. Capitation payments to providers are prevalent in California’s Medicare Advantage market as well.
For providers and hospitals serving Californians with Medi-Cal, encounter data is one of the important inputs for determining payment. Finally, encounter data may used to determine a patients’ cost-sharing within managed care-based insurance, thereby impacting a provider’s revenue at the point-of-service.
Additionally, encounter data is used to calculate provider performance scores, including quality, access, equity, utilization, and risk adjustment. With the growing emphasis on alternative payment models in all lines of business, a provider’s performance scores can increasingly impact their revenue through quality bonuses or other incentive designs that take quality performance into account.
Just like encounter data can be used to inform capitation rates paid to providers, it’s also used to determine capitation rates paid to managed care plans. It’s a central source of information for DHCS’ Medi-Cal managed care plan rate development process. In Medicare Advantage, CMS’ use of encounter data for rate development– through the calculation of risk scores – has increased since 2015.
Finally, in the commercial line of business, CMS’ permanent risk adjustment program relies on claims and encounter data to allocate payments across health plans based on the risk scores of plan enrollees. Introduced as part of the Affordable Care Act to help stabilize premiums in the commercial market, the program oversees the transfer of more than $10 billion annually between commercial health plans. The magnitude of these payment transfers highlights the importance of accurate encounter data for California’s commercial insurers.
Wherever there is a population-based payment like capitation in place, encounter data is the means to capture actual health status, services rendered, and disease acuity information for financial modeling, quality performance, and rate development purposes. While claims data ensures payment accuracy for providers paid under fee-for-service care models, encounter data serves the same administrative purpose for capitated care models at both the provider and the health plan levels.
Understanding the distinction between claims and encounters is key to understanding the encounter data challenges our healthcare system currently faces. There’s a lack of standardized submission and reporting processes for encounter data, and providers and health plans in California have repeatedly voiced frustrations in navigating the complexity of encounter data submission. These obstacles are holding back possible gains in improving healthcare value. While progress has been made, stakeholders across the healthcare community recognize that more work needs to be done.