Tag Archives: Rong Yi

Risk Adjustment 101

Seeking Alpha offers a high-level view of risk adjustment and what it means for health reform. Here is an excerpt:

The process of measuring risk factors for the purpose of risk-adjusted reimbursement is called simply risk adjustment: something that Wall Street does quite efficiently in a marketplace setting.

OK, so how does risk adjustment work in the reform context?

As with any type of modeling, risk adjustment is an imperfect science, especially as it pertains to a price discovery process that involves thousands of beneficiaries but only one payer and one provider.

In a recent white paper written for the Massachusetts Medical Society, Milliman, the actuarial consultancy, tackles the intricacies of risk adjustment and submits key principles that both the payer and provider need to heed when looking to form ACOs. [Read “Risk Adjustment: Important Considerations for Global Payments to Providers”.]

Many people, the Milliman paper explains, view the ACO concept as a viable alternative to the existing fee-for-service payment system. Not waiting for the U.S. government, commercial entities have already conceived and deployed ACO-type models, which included both a risk-adjusted global payment and a performance-based payment.

The government model continues the fee-for-service system but introduces additional payments based on a set of benchmarks for health care costs, outcomes, and quality. HHS is expected to recognize risk adjustment tools that will determine how much it reimburses groups for exceeding these benchmarks.

Milliman lists the following five key risk adjustment design principles:

  1. The groupings of medical conditions in a risk adjustment model should be clinically meaningful and reasonably specific, in order to minimize opportunities for gaming or discretionary coding.
  2. Diagnoses within the same condition category should be reasonably homogeneous with respect to health care cost and utilization, in order to optimize predictive accuracy and robustness of the model.
  3. Condition categories should have adequate sample sizes, to permit accuracy and stability of model predictions.
  4. The risk adjustment model design should encourage specific coding and discourage vague coding. Vague codes and nonspecific diagnoses should be excluded from the risk adjustment model
  5. The risk adjustment model should not reward coding proliferation. Providers should not be penalized for recording additional diagnoses. In other words, coding more diagnoses should not reduce the risk scores.


Risk adjustment in Massachusetts

The Massachusetts Medical Society has published two papers on risk adjustment:

The papers provide an overview of risk adjustment and where it fits in health reform while offering practical suggestions for using risk adjustment in Massachusetts.

What kind of risk adjustment systems are necessary for health insurance exchanges?

The Patient Protection and Affordable Care Act (PPACA) mandates that states establish one or more health insurance exchanges by January 2014. Under this business paradigm, private health insurance carriers will compete on price and quality in order to attract this new pool of insured consumers. People who have previously been under- or uninsured may find exchanges an attractive option when purchasing health insurance. But claim experience, including cost and utilization patterns, of the under- and uninsured population are mostly unknown to private health insurers at this time. This paper by Rong Yi and Diane Laurent examines the adequacy of current risk adjustment systems when applied to a wholly new type of enrollment—the “all-population risk pool”—and offers considerations and explores options for exchange designers.

Risk adjustment: Health calculus for the reform environment

Risk adjustment, a method for adjusting healthcare costs to reflect the health status of a given population, will take on new significance under healthcare reform. In order to harness the true potential of such a powerful tool, critical stakeholders like governmental agencies, health plans, provider organizations, and employer groups must understand how to properly select, implement, and evaluate risk-adjustment models. Using the appropriate risk-adjustment methodologies in the correct context will contribute to more accurate healthcare pricing, more efficient utilization, and improved quality of care.

A new healthcare reform briefing paper examines these considerations.