Risk adjustment in the Hoosier Assurance Plan: impact on providers

The Indiana Division of Mental Health designed a method for developing risk-adjusted case rates built on multidimensional assessment instruments that identified a consumer's level of need. An algorithm was developed sorting consumers within each of three target populations (adults with serious mental illness, adults with a chronic addiction, and children/adolescents with serious emotional disorders) into groups based on the relationship between their level of need and their similarity with regard to service cost. Actuarially determined risk-adjusted case rates were assigned to each group and applied to the case mix served by each provider in Indiana's public behavioral health system. This article describes four studies through which a determination was made as to the applicability of the risk-adjustment methodology. The results of the four studies supported using the adjusted case rates for adult consumers, but not for children/adolescents.