The use of risk adjustment in provider reimbursement arrangements has increased as alternative payment arrangements are becoming more widespread in health insurance. Risk adjustment has been used by Medicare Advantage and managed Medicaid programs to reimburse health plans for the unique risks and populations in their care. More recently, as carriers have transferred utilization risk to providers through alternative payment arrangements such as global budgets and bundled payments, risk adjustment has been used to reflect a provider’s patient’s severity. Also, under the Patient Protection and Affordable Care Act (ACA), beginning in 2014 risk adjustment will be used to transfer payments among all fully insured individual and small group plans.
Many existing risk-adjustment methodologies have been developed and used on populations that include a mix of adults and children. Because adults form a larger proportion of the average population, the disease states recognized in these methodologies were optimized with greater emphasis on adults. A chosen risk-adjustment methodology should reflect the characteristics of the underlying patient population, so organizations such as children’s hospitals, pediatric provider groups, and health plans that enroll a large proportion of children have begun to question these standard risk-adjustment models.