This document summarizes challenges in selecting a risk adjustment system for a new public health program. It discusses whether to use diagnosis-based or pharmacy-based models and whether to adjust for all members or a subset. It also addresses recalibrating existing models for new programs and ensuring proper weighting for members with partial eligibility periods. The document notes that while risk adjustment is not perfect, the benefits include encouraging market participation and competition to potentially lower costs and improve quality of care. It suggests risk-based contracting between health plans and providers may be a future direction for risk adjustment.

1. Session 28 PD: Public Programs for
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Medical Risk Adjustment in the US
Benefits, Challenges, and New Directions
Presented by
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Rong Yi, PhD
Senior Consultant
October 26, 2009
Rong.Yi@Milliman.com
Tel: (781) 213 6275

2. Challenges in Selecting a Risk Adjustment
System for a New Program
Diagnosis-based pharmacy-based
Diagnosis based or pharmacy based risk adjustment?
– Dx models are sensitive to coding quality and completeness of data
– Medicare Advantage revenue optimization services & claim audits
– Rx models are closely tied with utilization, and are sensitive to
prescription patterns
– specialty pharmacy data is not in outpatient Rx claims
– prescription OTC
– thousands of new NDC codes every year
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3. Challenges in Selecting a Risk Adjustment
System for a New Program (cont.)
Risk adjust all or a subset?
– Reinsurance and topcoded models
– Carved out benefits
Partial eligibility.
– Need proper weighting and normalization mechanisms for:
• Members with <12 months of eligibility
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• Membership movements among MCOs during open enrollment
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4. Challenges in Selecting a Risk Adjustment
System for a New Program (cont.)
Model recalibration
– Does the off-the-shelf model need to be recalibrated?
• Off-the-shelf model may not fit because:
Off the shelf
– Too old
– Represents different geography and socioeconomic mix
– Different benefit coverage
• Readiness of the client data – sample size and data quality
– How often does a risk adjustment model need to be recalibrated?
• Dx based models have a longer “shelf life”
– Examples: MA Medicaid, MA Connector Authority
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5. Not Perfect but the Benefits are Real
Government payers: level off playing field for private health
plans, encourage market participation and competition, drive
down cost, improve quality of care
– Risk adjustment mentioned in health reform bills
– Increased interest in risk adjustment in other countries
Private health plans: fairer competition (some) guarantee on
competition,
revenue in adverse risk selection
Example: MA Connector Authority
– Flat premium without changing benefits or cost-sharing
– More MCOs in the program
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6. New Directions
So far, risk adjustment is primarily used in contracting and
payments between government payers and private health
plans.
What’s next?
– Risk-based contracting between provider organizations and health
p a s o change e delivery of care
plans to c a ge the de e y o ca e
• BCBS MA Alternative Quality Contract
• Risk adjusted utilization targets ( g avoidable ER use, high cost drugs,
j g (e.g., g g
referral patterns, high cost imaging tests)
• Episode based provider reimbursement
• Patient-centered medical home
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