Understanding Payment Reconciliation in Medicare Advantage: A Complete Training Guide

Introduction

In Medicare Advantage (MA), risk adjustment doesn’t end with a model run — it ends with payment reconciliation.

Payment reconciliation is where data meets dollars. It’s the process through which CMS aligns all plan payments with validated enrollment, diagnosis, and risk score data — ensuring every cent reflects actual member risk and eligibility.

For MAOs, mastering this process is vital. Reconciliation affects cash flow, revenue forecasting, audit preparedness, and even plan performance ratings.

This guide breaks down the entire reconciliation process — from model outputs to MARx adjustments — and how to use CMS reports like MMR, MORE, and MAO-004 to maintain financial accuracy and compliance.

The CMS Payment Ecosystem

Payment reconciliation sits at the intersection of multiple CMS systems. Understanding each system’s role is key:

RASS (Risk Adjustment Suite of Systems)
Calculates risk scores from submitted diagnoses and model runs (Initial, Midyear, Interim, Final). Outputs: MOF, RAF, and MORE.
EDPS (Encounter Data Processing System)
Processes encounter-level claim data from MAOs. Feeds validated diagnoses to RASS for risk adjustment scoring.
MARx (Medicare Advantage and Prescription Drug System)
Applies risk scores, enrollment status, benchmark rates, and rebates to generate monthly plan payments.
MMR (Monthly Membership Report)
The financial DNA of your plan — showing capitation, adjustments, rebates, and risk factor details for every member.
MAO-004 (Risk Adjustment Data Validation File)
Reflects final diagnosis acceptance and payment adjustment information used for risk score reconciliation.

Together, these systems ensure CMS payments are accurate, traceable, and supported by compliant data.

What Is Payment Reconciliation?

Payment reconciliation is the process of aligning CMS payments with the most current and validated data available.

It involves systematically updating plan payments based on:

Member eligibility and enrollment changes
Updated demographic or risk adjustment factors
Results of RASS model runs
RADV and overpayment recoveries
Late-submitted encounters or corrections

CMS performs this reconciliation through scheduled model runs and ad hoc adjustments, ultimately leading to a Final Reconciliation for the Payment Year.

Payment Year vs. Data Collection Year

A key concept in understanding reconciliation is the offset between data collection and payment.

Data Collection Year: The calendar year in which services are rendered and diagnoses are submitted (e.g., 2024).
Payment Year: The year following, when CMS uses those diagnoses to calculate payments (e.g., 2025).

This lag allows CMS to process all encounters, corrections, and RADV adjustments before determining the final payment.

The Payment Reconciliation Cycle

CMS conducts several model runs that culminate in final payment reconciliation:

1. Initial Model Run

Performed in September of the data collection year
Uses partial encounter data (July prior year – June current year)
Sets payments for the first half of the payment year (January–June)

2. Midyear Model Run

Performed in March of the payment year
Uses full calendar year encounter data (Jan–Dec)
Adjusts payments for July–December

3. Interim Final Run

Conducted in February after the payment year
Provides early reconciliation of all payments for that year

4. Final Model Run

Conducted in August following the payment year
Reflects the definitive risk scores and payments for that period

5. Cleanup & Overpayment Runs

Ad hoc runs triggered by RADV results, deletes, or systemic corrections
Ensure post-final adjustments are properly reconciled

Key Data Sources in Reconciliation

CMS integrates multiple data streams into reconciliation calculations:

EDPS Data: Encounter-level records used for primary risk score calculation
RAPS Data: Legacy summary data (still partially used for blend years)
MAO-004 Files: Confirmed diagnosis-level risk adjustment data
MMR Files: Reflect all capitation payments, rebates, and adjustments
MORE Reports: Monthly summaries of model output and risk score derivations
RADV Results: Overpayment recoveries and deletions integrated post-audit

Together, these ensure that every dollar paid is supported by a valid, auditable diagnosis record.

How CMS Calculates Reconciled Payments

At each model run and reconciliation stage, CMS recalculates payments using this general logic:

Final Payment = (Base Rate + Rebates + Add-ons) × Normalized RAF × (1 − Coding Adjustment)

Where:

Base Rate: County benchmark or bid rate
RAF: Derived from the latest RASS output
Normalization Factor: Adjusts scores so national average = 1.0
Coding Adjustment: CMS adjustment for documentation patterns across MA vs. FFS

CMS uses MARx to apply these calculations and issue monthly payments reflected in the MMR file.

Reconciliation Triggers and Adjustments

Reconciliations can occur for many reasons:

Late-submitted or corrected encounters
Member retroactive disenrollment or death notifications
Risk score recalculations (post-RASS updates)
Chart review additions or deletions
RADV overpayment recoveries
CMS Cleanup Model Runs

Each event prompts recalculation of risk scores and adjustments in MARx payment streams.

Example: The Flow of Reconciliation

Encounter submitted via EDPS
Diagnosis accepted and mapped to HCC
RASS model run produces RAF and MOF
MARx applies risk score and demographic data to payment
MMR reflects updated payment and ARC codes
RADV deletes trigger overpayment adjustment
Final Model Run reconciles all data sources

The result: each beneficiary’s payment reflects real, validated, and auditable data — nothing more, nothing less.

Why Payment Reconciliation Matters

Financial Accuracy
Ensures every payment is based on verified diagnoses and correct demographics.
Compliance & Transparency
Aligns plan data with CMS audit requirements (RADV, OIG, and internal audits).
Forecasting & Budgeting
Enables accurate RAF and revenue projections for finance teams.
Audit Readiness
Ensures MAOs can trace every payment to source data and supporting documentation.
Operational Integrity
Encourages proactive data correction and timely submission practices.

Common Reconciliation Challenges

Late encounter submissions missing cutoff dates
Improperly linked chart reviews (causing rejected diagnoses)
Incorrect or missing provider identifiers in EDPS files
RAPS/EDPS blending confusion (especially during transition years)
Failure to monitor ARC codes in MMR files
Unresolved RADV findings not reflected in financial ledgers

Each issue can create discrepancies between CMS-calculated and MAO-expected payments.

Best Practices for MAOs

Align Operations and Finance Teams
Ensure coding, reconciliation, and accounting teams share a unified data view.
Automate File Tracking
Monitor EDPS → MAO-002 → MAO-004 → MMR chain using dashboards.
Validate Monthly
Compare internal RAFs with CMS MORE and MMR outputs.
Watch Cleanup Runs
Cleanup and overpayment runs can trigger unexpected payment shifts — plan reserves accordingly.
Leverage Technology
Use ETL pipelines to link encounter IDs, HCCs, RAFs, and payments end-to-end.
Document Everything
Maintain clear audit trails from ICD-10 codes to payment records.

Key CMS References

Conclusion

Payment Reconciliation is the finish line of the risk adjustment lifecycle.

From EDPS submissions to RADV recoveries, it’s where every data point meets financial accountability.

Plans that actively track their reconciliation events, validate their CMS outputs, and maintain complete audit documentation are those that thrive — not just survive — under CMS scrutiny.

“Reconciliation ensures every dollar earned is a dollar justified.”

By mastering this process, your organization can confidently connect data, compliance, and dollars — the foundation of sustainable Medicare Advantage operations.