Discretionary hospital use and diagnostic risk adjustment of Medicare HMO capitation rates

Area of Science:

• Health Services Research
• Healthcare Policy
• Medical Economics

Background:

• Health Maintenance Organizations (HMOs) face concerns regarding risk adjustment models based on inpatient diagnoses.
• Models solely on inpatient diagnoses may unfairly penalize Medicare HMOs for cost-saving measures like reduced discretionary hospitalizations.

Purpose of the Study:

• To compare the diagnostic composition of hospitalizations between Medicare HMOs and Fee-for-Service (FFS) plans.
• To test if lower Medicare HMO admission rates stem from reduced high-discretion hospitalizations.

Main Methods:

• Comparative analysis of diagnostic data from HMO and FFS hospitalizations across four states.
• Evaluation of principal diagnoses rated for discretion levels.

Main Results:

• Minimal differences observed in the proportion of high-discretion principal diagnoses between Medicare HMO and FFS hospitalizations.
• Findings do not support the hypothesis that Medicare HMOs significantly reduce discretionary hospitalizations compared to non-discretionary ones.

Conclusions:

• The study challenges the assumption that Medicare HMOs achieve cost savings primarily through reduced discretionary hospitalizations.
• Current risk adjustment models may require re-evaluation to accurately reflect HMO performance and cost-containment strategies.