Using risk assessment to evaluate adverse selection under capitated contracts

Most provider organizations rely on health plan or market-based information about capitation rates, per member per month costs, and utilization trends to benchmark their performance. However, these statistics can be misleading because of differences in enrollee mix and contracting terms across provider organizations. This article describes the limitations of health plan contract provisions in protecting against adverse selection. It describes various actuarial and statistical data sources for evaluation of adverse selection. The article then presents various approaches to risk adjustment on population basis and their use in quantifying adverse selection for health plan contract negotiations.