Risk adjustment in medicare part d prescription drug benefit
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Risk Adjustment in Medicare Part D Prescription Drug Benefit. Open Door ForumDecember 2004. Risk Adjuster Basics. Capitated payment is adjusted according to the expected cost of the enrollee. Expected cost is derived from enrollee characteristics:

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Risk Adjustment in Medicare Part D Prescription Drug Benefit

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Risk adjustment in medicare part d prescription drug benefit

Risk Adjustment in Medicare Part DPrescription Drug Benefit

Open Door ForumDecember 2004


Risk adjuster basics

Risk Adjuster Basics

  • Capitated payment is adjusted according to the expected cost of the enrollee.

  • Expected cost is derived from enrollee characteristics:

    • Enrollees may be sorted, by their characteristics, into cells that have assigned risk factors, or

    • Characteristics may be assigned risk factors that are added to produce a total risk factor

  • In Part D the basic payment formula is:

    Payment = standardized bid  enrollee’s risk factor – plan’s enrollee premium


Risk adjuster structure

Risk Adjuster Structure

  • The CMS risk adjuster produces a person-specific risk factor by summing the factors associated with characteristics such as:

    • Age/sex, e.g., male 70-74, female 70-74 ….

    • Originally disabled status, e.g., male 65+ who entered Medicare < 65 because of disability

    • Presence of medical conditions, e.g., cancers, diabetes, liver disorders, ischemic heart diseases, heart failure, psychiatric disorders …


Risk adjuster structure1

Risk Adjuster Structure

  • The risk model is prospective: the medical conditions from a given year are used to predict expenditures in the next year.

  • The disease groupings are clusters of related ICD-9-CM diagnosis codes.

  • Diagnoses from hospital inpatient, hospital outpatient, and clinician sources are used.

  • The disease groups are derived from the CMS-HCC risk model used in the Medicare Advantage program today, but have been modified to reflect drug spending as opposed to spending on A/B services.


Risk adjuster structure2

Risk Adjuster Structure

  • The risk factors for disease groups are additive when the diseases are not closely related:

    • inflammatory bowel disease, AMI, schizophrenia

  • The groups may be in hierarchies when related and their costs have a logical ranking:

    • Diabetes with complications, diabetes without complications

    • Only the highest coded group in a hierarchy counts for payment.


Risk adjuster structure3

Risk Adjuster Structure

Additive model: factors for demographic characteristics + factors for diagnoses


Risk adjuster development

Risk Adjuster Development

  • Principal data source: Drug claims for Federal retirees in FEHB Blue Cross Blue Shield Service Benefit Plan + Medicaid sample

  • Diagnoses from linked Medicare files

    • Diagnoses from 2001 to predict costs in 2002 and similarly from 2000 to predict 2001

  • Decedents in cost years were included till death.

  • A linear regression model was estimated

    • Dependent variable – total spending on prescription drugs, annualized, mix of retail and mail order

    • Explanatory variables – the array of person characteristics - age/sex, diseases

    • Estimated coefficients are the incremental costs of each condition or demographic characteristic.


Risk adjuster development1

Risk Adjuster Development

  • In an iterative process, the disease groups were disassembled into smaller subgroups, and reassembled to allow empirical estimation of costs and clinical judgment to weigh in the development.

  • The explanatory power of the model is on a par with other drug models reported (R2=.23 for spending) and is higher than similar models for Parts A and B.


Risk adjuster rough example 1 for 2006

Risk Adjuster – rough example 1 for 2006

Spending Model

CodedSpendingRelative

CharacteristicIncrementFactor

Female, age 76$ 850.283

Diabetes, w. complications1,600.533

Diabetes, uncomplicated 1,000.333

High cholesterol450.150

Congestive Heart Failure650.217

Osteoporosis500.167

Total Annual Pred. Spending$4,0501.350

For implementation, dollar amounts are divided by the national mean (~ $3,000) to create relative factors that multiply base rates.


Risk adjuster for plan liability

Risk Adjuster for Plan Liability

  • Plans are not liable for the total spending. Standard benefit liability is 75% of spending from $250 to $2250, about 15% above $5100, and 0% elsewhere.

  • The structure developed for modeling spending has been re-estimated on the same data set, with the standard benefit structure applied to each enrollee’s spending.

  • This is the Plan Liability model. (R2=.25)

  • The average projected 2006 spending in the data is about $3,000; the average plan liability from the data is about $1,100.


Risk adjuster rough example 2 for 2006

Risk Adjuster – rough example 2 for 2006

Liability Model

CodedPaymentRelative

CharacteristicIncrementFactor

Female, age 76$ 550.500

Diabetes, w. complications300.273

Diabetes, uncomplicated 200.182

High cholesterol150.136

Congestive Heart Failure250.227

Osteoporosis150.136

Total Annual Pred. Spending$1,4001.272

For implementation, dollar amounts are divided by the national mean (~ $1,100) to create relative factors that multiply base rates.


Risk adjuster for plan liability1

Risk Adjuster for Plan Liability

  • Tasks to be completed

    • Development of New Enrolleemodel for people new to Medicare with insufficient data for risk adjustment. This model is based on demographics.

    • Study of Medicaid population to investigate:

      • factors for under-65 disabled population

      • adjustments for institutional population

      • adjustments for low-income population


Schedule

Schedule

  • Late December

    • Release of Bidders Data Set - 5% files of FFS beneficiaries with imputed drug utilization

  • Late January

    • Posting of draft model coefficients and mappings of diagnoses to disease groups

    • Release of drug risk factors for people in 5% files

  • Mid February

    • 45-day notice for MA with PDP information

  • Late March

    • Bid and Risk Adjustment training

  • April

    • Release of final model, software and final risk factors for 5% file if different from draft


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