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Adjusting capitation rates using objective health measures and prior utilization.

J P Newhouse, W G Manning, E B Keeler

Health Care Financing Review

|January 4, 1990

Summary

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Adding health status and prior healthcare utilization adjusters significantly improves predictions of annual medical costs for non-elderly adults. Prior utilization proved a stronger predictor than health status alone.

Area of Science:

Health economics
Medical cost prediction
Healthcare utilization analysis

Background:

Current adjusted average per capita cost formulas may not accurately reflect individual healthcare spending.
Need for improved predictive models for healthcare expenditures.

Purpose of the Study:

To evaluate the predictive accuracy of health status and prior utilization adjusters for annual medical expenditures.
To compare the effectiveness of individual and combined adjusters.

Main Methods:

Statistical analysis of medical expenditures in a non-elderly adult population.
Assessment of variance explained by health status adjusters.
Assessment of variance explained by prior utilization adjusters.
Evaluation of combined health status and prior utilization adjusters.

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Main Results:

Health status adjusters explained 20-30% of predictable variance in medical expenditures.
Prior utilization adjusters explained over 40% of predictable variance.
Combined adjusters explained approximately 60% of predictable variance.

Conclusions:

Prior utilization is a strong predictor of future medical costs.
Combining health status and prior utilization offers substantial predictive improvement.
Incorporating utilization measures is recommended until superior health status predictors are available.