(a) General requirement. Any risk adjustment methodology used by a State, or HHS on behalf of the State, must be a Federally certified risk adjustment methodology. A risk adjustment methodology may become Federally certified by one of the following processes:
(1) The risk adjustment methodology is developed by HHS and published in the applicable annual HHS notice of benefit and payment parameters; or
(2) An alternate risk adjustment methodology is submitted by a State in accordance with Sec. 153.330, reviewed and certified by HHS, and published in the applicable annual HHS notice of benefit and payment parameters.
(b) Publication of methodology in notices. The publication of a risk adjustment methodology by HHS in an annual HHS notice of benefit and payment parameters or by a State in an annual State notice of benefit and payment parameters described in subpart B of this part must include:
(1) A complete description of the risk adjustment model, including--
(i) Factors to be employed in the model, including but not limited to demographic factors, diagnostic factors, and utilization factors, if any;
(ii) The qualifying criteria for establishing that an individual is eligible for a specific factor;
(iii) Weights assigned to each factor; and
(iv) The schedule for the calculation of individual risk scores.
(2) A complete description of the calculation of plan average actuarial risk.
(3) A complete description of the calculation of payments and charges.
(4) A complete description of the risk adjustment data collection approach.
(5) The schedule for the risk adjustment program.
(c) Use of methodology for States that do not operate a risk adjustment program. HHS will specify in the annual HHS notice of benefit and payment parameters for the applicable year the Federally certified risk adjustment methodology that will apply in States that do not operate a risk adjustment program. [77 FR 17247, Mar. 23, 2012, as amended at 78 FR 15528, Mar. 11, 2013]