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.

Download full-text


Available from: William Hatfield Dow, Mar 10, 2014
  • Source
    • "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. "
    [Show abstract] [Hide abstract]
    ABSTRACT: Medication claims are commonly used to calculate the risk adjustment for measuring healthcare cost. The Rx-defined Morbidity Groups (Rx-MG) which combine the use of medication to indicate morbidity have been incorporated into the Adjusted Clinical Groups (ACG) Case Mix System, developed by the Johns Hopkins University. This study aims to verify that the Rx-MG can be used for adjusting risk and for explaining the variations in the healthcare cost in Taiwan. The Longitudinal Health Insurance Database 2005 (LHID2005) was used in this study. The year 2006 was chosen as the baseline to predict healthcare cost (medication and total cost) in 2007. The final sample size amounted to 793,239 (81%) enrolees, and excluded any cases with discontinued enrolment. Two different kinds of models were built to predict cost: the concurrent model and the prospective model. The predictors used in the predictive models included age, gender, Aggregated Diagnosis Groups (ADG, diagnosis- defined morbidity groups), and Rx-defined Morbidity Groups. Multivariate OLS regression was used in the cost prediction modelling. The concurrent model adjusted for Rx-defined Morbidity Groups for total cost, and controlled for age and gender had a better predictive R-square = 0.618, compared to the model adjusted for ADGs (R2 = 0.411). The model combined with Rx-MGs and ADGs performed the best for concurrently predicting total cost (R2 = 0.650). For prospectively predicting total cost, the model combined Rx-MGs and ADGs (R2 = 0.382) performed better than the models adjusted by Rx-MGs (R2 = 0.360) or ADGs (R2 = 0.252) only. Similarly, the concurrent model adjusted for Rx-MGs predicting pharmacy cost had a better performance (R-square = 0.615), than the model adjusted for ADGs (R2 = 0.431). The model combined with Rx-MGs and ADGs performed the best in concurrently as well as prospectively predicting pharmacy cost (R2 = 0.638 and 0.505, respectively). The prospective models showed a remarkable improvement when adjusted by prior cost. The medication-based Rx-Defined Morbidity Groups was useful in predicting pharmacy cost as well as total cost in Taiwan. Combining the information on medication and diagnosis as adjusters could arguably be the best method for explaining variations in healthcare cost.
    Full-text · Article · May 2010 · BMC Health Services Research
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: Insurance market reforms face the key challenge of addressing the threat that risk selection poses to the availability, of stable, high-value insurance policies that provide long-term risk protection. Many of the strategies in use today fail to address this breakdown in risk pooling, and some even exacerbate it. Flexible risk adjustment schemes are a promising avenue for promoting market stability and limiting insurer cream-skimming, potentially providing greater benefits at lower cost. Reforms intended to increase insurance coverage and the value of care delivered will be much more effective if implemented in conjunction with policies that address these fundamental selection issues.
    Full-text · Article · Feb 2009 · Inquiry: a journal of medical care organization, provision and financing
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: In 2006, six million beneficiaries who were eligible for both Medicare and Medicaid switched from Medicaid to Medicare Part D for coverage of their prescription drugs. This change led to an expanded role for Medicare in financing psychotropic medications for dual eligibles. A reduction in the number of plans serving these beneficiaries and an increase in utilization restrictions for some psychotropics since 2006 raise concerns about access to medications for dual eligibles with mental disorders and point to potential problems with adverse selection. To improve access for this population, Medicare might consider changes to its enrollment and risk-sharing systems.
    Preview · Article · May 2009 · Health Affairs
Show more