Distributing $800 Billion: An Early Assessment Of Medicare Part D Risk Adjustment

Center for Health Policy Studies and Division of Research, Kaiser Permanente Medical Care Program, Oakland, California, USA.
Health Affairs (Impact Factor: 4.97). 01/2009; 28(1):215-25. DOI: 10.1377/hlthaff.28.1.215
Source: PubMed


The viability and stability of the Medicare Part D prescription drug program depend on accurate risk-adjusted payments. The current approach, prescription drug hierarchical condition categories (RxHCCs), uses diagnosis and demographic information to predict future drug costs. We evaluated the performance of multiple approaches for predicting 2006 Part D drug costs and plan liability. RxHCCs explain 12 percent of the variation in actual drug costs, overpredict costs for beneficiaries with low actual costs, and underpredict costs for beneficiaries with high actual costs. Combining RxHCCs with individual-level information on prior-year drug use greatly improves performance and decreases incentives for plans to select against bad risks.

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Available from: William Hatfield Dow, Mar 10, 2014
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    • "They pointed out that drug costs tend to be stable from year to year and are more predictable than other types of medical costs. Therefore, ignoring past costs may result in preventable misallocation of resources and creates a strong incentives for reverse patient selection [45]. The data of our study also support that predictive models combined with Rx-MGs, ADGs, and prior cost performed the best in predicting future cost. "
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