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February 2, 2010

Disease Management: A New Paradigm for Managed Care

Filed under: Uncategorized — Doctor @ 3:44 pm

The long-term outlook for managed care may be threatened by current capitation-rate-development methods that adjust risk for age, gender, geographic area, income level, and occupation, but not health status. Not only provider payments, but also patient access may be compromised as a result. New risk-adjustment methods that categorize patients into groups based on their current health status and anticipated disease progression allow fairer distribution of the essential components of costs to deliver healthcare services to the at-risk population, and improve upon HCFA’s adjusted average per capita cost (AAPCC) rates and recently implemented principal inpatient diagnostic cost group (PIP-DCG) risk-adjustment methodology.¬†

One of the greatest challenges faced by provider organizations contracting for global risk is to appropriately allocate the capitation dollar to all constituencies based on the portion of healthcare risk they assume. This challenge is compounded by the transition of Medicare- and Medicaid-eligible populations into Medicare Choice and state-mandated managed care programs. Because these populations tend to have a higher proportion of relatively sick participants than commercially insured populations, they increase providers’ financial risk and clinical management challenges. Currently, while health status adjustment in capitation rate development has been proposed, no such risk adjustment that considers total medical costs has been made.

For managed care programs to succeed, capitation rates and capitation payment allocation among providers should be developed based on a fair and realistic evaluation of the health status of the covered population and application of appropriate risk adjusters. Shared risk contracts also must include easily measured, achievable incentives to encourage provider organizations to successfully manage care for all populations covered by the risk contract.

The Case for Risk Adjustment 

Existing contracting methods that fail to adequately adjust for health status limit both provider payments and patient access. Providers currently are required to accept a payment equal to the average risk of the total population, adjusted only for traditional rating factors such as age, gender, geographic area, income level, and occupation. Higher-risk patients may be denied access to care by managed care organizations that seek to optimize their revenues by enrolling only healthy populations.

The adjusted average per capita cost (AAPCC) rates, calculated by HCFA to compensate Medicare Choice organizations for care of Medicare patients, do not measure actual health risk for the portion of the Medicare-eligible population that consumes the most healthcare services. Several managed care organizations have exited the Medicare Choice program for this reason.

The principal inpatient diagnostic cost group (PIP-DCG) risk-adjustment methodology which HCFA began to phase in with January 2000 payments to Medicare Choice organizations, does not effectively address the inadequacy of the AAPCC rates because it compensates only for increased health risk associated with an inpatient admission; thus, it does not address the fact that increasing numbers of inpatient procedures are being diverted to outpatient settings. In essence the risk-adjusted AAPGC rates may serve as an incentive to providers to hospitalize a patient to receive the higher, risk-adjusted payment.

The Risk Adjustor Work Group of The American Academy of Actuaries, which was asked by HCFA to evaluate the agency’s proposed PIP-DCG risk-adjustment method, recommended that HCFA implement “a risk adjustment system based on more comprehensive data as soon as administratively feasible” (emphasis added by Work Group). HCFA already has announced a delay in the phased-in implementation of the PIP-DCG methodology in recognition of these issues.

New Risk-Adjustment Models

Risk-adjustment models that use an episode grouper to categorize patients into clinically meaningful groups can eliminate many of the inadequacies of current capitation-rate-development models by adjusting rates to reflect the costs of co-morbidity and disease progression at every point along the continuum of care. These episode-grouper risk models can help resolve the tug-of-war between physicians and hospitals over the allocation of the capitation dollar. Some models currently being tested include clinical risk group (CRG), hierarchical coexisting condition (HCC), and Health Insurance Plan of California (HIPC) models. The HIPC model considers only inpatient admissions in the risk-adjustment process, while the CRG and HCC models consider total medical costs.

The introduction of risk adjustment in determining the total cost of medical care can influence the enrollment and retention by managed care organizations of members who could consume a disproportionate share of health services. Evolving systems not only measure costs, diagnoses, and number of procedures and services, but also examine specific mortality rates and chronic and comorbid conditions based on family histories, disease progression and its timing in relation to the cost of each stage of the disease (using a severity-indexed transition matrix), treatment goals, and complexity of care required. Some models use sophisticated techniques to address the special needs and costs of certain populations, such as pediatric populations or those with HIV/AIDS. The National Association of Children’s Hospitals and Related Institutions (NACHRI) has tested the CRG model extensively and supports its use for pediatric special-needs populations. These techniques usually require significant clinical input into the transition matrix.

These innovative risk-adjustment systems, combined with the trend toward greater integration in the healthcare delivery system, will allow provider payments to be based on capitation payments specifically developed to cover high-risk patients. The new risk-adjustment systems provide incentives in the capitation payment rate for managed care organizations and their contracted provider networks to compete based on quality and efficiency rather than on risk avoidance achieved by selecting a healthier segment of the eligible population. When applied on an individual basis, risk-adjustment models that consider total medical costs are much more accurate in their ability to predict future medical costs than the current AAPCC methodology.

Risk Adjustment as a Management Tool

Health status risk-adjustment models provide a meaningful basis for evaluating both the processes of care and their associated financial effects on the healthcare provider. These models usually are designed to be budget-neutral or to incorporate managed care savings to the payer. They provide greater compensation to a managed care organization and, ultimately, to the contracted provider, for members perceived to be higher-risk, and lower compensation for members perceived to be lower-risk. Health status risk models will improve the accuracy of capitation development for very large populations, where sicker patients and less-sick patients, in theory, are supposed to balance risk. Their ability to measure risk based on health status will allow for more accurate development of capitation payments as healthcare risk is passed on to provider organizations delivering care to subsets of these large populations.

The effectiveness of the risk-adjustment model partly depends on an established process, implemented by the provider organization, to evaluate the financial impact of he treatment protocols. The process should allow:

  • Assignment of members to a single, mutually exclusive risk group
  • Ability to combine risk groups
  • Adjustment of risk groups for illness severity
  • Data capture from standard claims data
  • Segregation of costs by components of care
  • Adjustment for nonclinical factors
  • Stop-loss and reinsurance programs
  • Support of other internal management systems

Clinically based risk-adjustment models create a common language that links the clinical and financial aspects of care. These models are designed to serve as the foundation of management systems that support clinical pathways, product-line management, and case management. The detailed information supplied by health status risk models can be used by providers to respond to financial incentives in the system. Information available to providers under a health status risk model would include expected utilization and cost by component of care for each clinical risk category. Such information allows providers to assess expected treatment protocols, address or validate differences within the provider’s own protocols and costs, and provide a framework to manage care within expectations.

Just as the DRG methodology allowed payment-rate discussions to focus on patients with specific clinical conditions, health status risk-adjustment models that consider total medical costs provide a tool for evaluating the adequacy of capitation rates and the allocation of capitation payments based upon established clinical processes. The new health status risk-adjustment models that link payments with clinical processes will allow providers to focus on variations in the diagnostic and treatment process rather than on payments associated with unspecified age, gender, and geographic differences. These tools can give providers and payers incentives to control costs instead of avoiding risks.

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