Diagnostic risk adjustment for Medicaid: the disability payment system

This article describes a system of diagnostic categories that Medicaid programs can use for adjusting capitation payments to health plans that enroll people with disability. Medicaid claims from Colorado, Michigan, Missouri, New York, and Ohio are analyzed to demonstrate that the greater predictability of costs among people with disabilities makes risk adjustment more feasible than for a general population and more critical to creating health systems for people with disability. The application of our diagnostic categories to State claims data is described, including estimated effects on subsequent-year costs of various diagnoses. The challenges of implementing adjustment by diagnosis are explored.