Definitions. In this regulation, in addition to the definitions set forth in COMAR 10.67.01, the following terms have the meanings indicated. Terms Defined. “Demographic rate cell” means a cell in one of the rates tables in Regulation .19B(4) of this chapter to which an MCO's enrollees are assigned pursuant to Regulation .19B(1)(b) and B(2)(b) of this chapter. “Initial rate adjustment period” means the 6-month period beginning January 1 of the rate year. “Mid-year rate adjustment period” means the 6-month period beginning July 1 of the rate year. “RAC rate cell” means a cell in one of the rates tables in Regulation .19B(4) of this chapter to which an MCO's enrollees are assigned pursuant to Regulation .19B(1)(a) and (2)(a) of this chapter. “Rate adjustment period” means a 6-month period within the rate year that includes: The initial rate adjustment period beginning January 1 of the rate year; and The mid-year rate adjustment period beginning July 1 of the rate year. “Rate year” means the calendar year to which the rates calculated pursuant to this regulation apply. “Risk Adjustment Category (RAC)” means a grouping of adjusted clinical groups (ACGs), each of which is associated with a similar level of risk. “Risk assessment cohort” means each of the eight groupings of enrollees, assigned on the basis of their: Program eligibility category, either “families and children”, as specified in Regulation .19B(1) of this chapter, or “disabled”, as specified in Regulation .19B(2) of this chapter; Region of residence category, either in “Baltimore City” or in the “rest of State”; and Age category, either at least 1 year old but younger than 21 years old, or 21 years old or older. “Risk assessment year” means the calendar year 2 years before the rate year. For calculating an adjustment to MCO payment rates reflecting the relative level of risk of providing enrollees assigned to demographic rate cells covered health care services pursuant to COMAR 10.67.06, the Department shall, for each MCO, identify the enrollees to be considered as follows: For each rate adjustment period in the rate year, identify the current demographic enrollees for each MCO who: In the risk assessment year: Were certified eligible for the Program for at least 6 months; Were assigned to a demographic rate cell; and As of June 30, were 1 year old or older; and In the calendar year before the rate year: For the initial rate adjustment period calculation for the rate year 2004, were enrolled in the MCO in March; For the initial rate adjustment period calculation for rate years after 2004, were enrolled in the MCO in June; and For the mid-year rate adjustment period calculation, were enrolled in the MCO in December; Assign each enrollee identified pursuant to §B(1) of this regulation into one of the eight risk assessment cohorts; Make the determinations necessary for the assignments required by §B(2) of this regulation consistent with the following time frames: For an initial rate adjustment period calculation for the rate year 2004: An enrollee's eligibility category and region of residence as of March of the calendar year before the rate year; and An enrollee's age category as of March 31 of the calendar year before the rate year; For an initial rate adjustment period calculation for rate years after 2004: An enrollee's eligibility category and region of residence as of June of the calendar year before the rate year; and An enrollee's age category as of June 30 of the calendar year before the rate year; and For a mid-year rate adjustment period calculation: An enrollee's eligibility category and region of residence as of December of the calendar year before the rate year; and An enrollee's age category as of December 31 of the calendar year before the rate year; and For calculating an MCO's case mix adjustment pursuant to this regulation, disregard any risk assessment cohorts to which fewer than 50 of an MCO's enrollees are assigned pursuant to §B(2) of this regulation. Methodology for Determining MCO-specific RAC Case Mix Measures. For each MCO, the Department shall: Based on encounter and fee-for-service data documenting services delivered during the risk assessment year, determine the diagnoses attributable to an MCO's enrollees identified pursuant to §B of this regulation; Based on diagnoses in the risk assessment year, assign each enrollee identified pursuant to §B of this regulation to the appropriate risk adjustment category (RAC), consistent with the protocol set forth in Regulation .19B(1)(a) and (2)(a) of this chapter; Apply the RAC rates for the appropriate rate adjustment period to the RAC distribution determined pursuant to §C(2) of this regulation; Using the results of the calculations specified in §C(3) of this regulation, calculate an MCO's average RAC rates separately for each of the MCO's risk assessment cohorts derived in accordance with §B of this regulation; and To determine an MCO's relative RAC case mix factors, divide each of the MCO's average RAC rates determined in accordance with §C(4) of this regulation by each overall average RAC rate for all MCOs for the same risk assessment cohort. Methodology for Determining MCO-specific Demographic Case Mix Measures. For each MCO, the Department shall: Determine the demographic distribution of its current enrollees as specified in §B of this regulation; Apply the appropriate demographic rates for the rate adjustment period to the demographic distribution as determined pursuant to §D(1) of this regulation; Using the results of the calculations specified in §D(2) of this regulation, calculate the MCO's average demographic rates separately for each of the MCO's risk assessment cohorts derived in accordance with §B of this regulation; and To determine an MCO's relative demographic case mix factors, divide each of the MCO's average demographic rates determined pursuant to §D(3) of this regulation by each of the overall average of demographic rates for all MCOs for the same risk assessment cohort. MCO-Specific Case Mix Adjusted Demographic Rates. The Department shall, for each MCO: Calculate MCO-specific risk adjustment factors by dividing, for each risk assessment cohort, the relative RAC case mix factor determined pursuant to §C of this regulation, by the relative demographic case mix factor determined pursuant to §D of this regulation; Modify the MCO-specific risk adjustment factor derived for each risk assessment cohort pursuant to §E(1) of this regulation as follows: Reduce each risk adjustment factor that is higher than 1.1 to 1.1; and Increase each risk adjustment factor that is lower than 0.9 to 0.9; Subject to §E(4) of this regulation, calculate the MCO-specific demographic rates for the rate adjustment period by multiplying the risk adjustment factor for each risk assessment cohort, derived pursuant to §E(1) of this regulation, by the value specified in each demographic rate cell for the rate year; and Apply a budget neutrality adjustment to the values derived in §E(3) of this regulation so that aggregate payments to all MCOs pursuant to this regulation are equivalent to the aggregate payments that would be due to all MCOs in the absence of this regulation. Case Mix Updates. The Department shall: Repeat the calculations described in §§C—E of this regulation every 6 months to update current MCO enrollees' region of residence, age, and enrollment categories as of the calendar year before the rate year, as provided in §B(3) of this regulation; and For the rate adjustment periods beginning January 1 and July 1 of each rate year, use each MCO's updated RAC case mix measures and updated demographic case mix measures to compute its demographic rates for the rate adjustment period, as described in §E of this regulation.