Prior use of durable medical equipment as a risk adjuster for health-based capitation

This paper examines a new risk adjuster for capitation payments to Dutch health plans, based on the prior use of durable medical equipment (DME). The essence is to classify users of DME in a previous year into clinically homogeneous classes and to apply the resulting classification as a risk adjuster for capitation payments in the subsequent year. We evaluate 143 DME types in terms of incentives, validity, predictive value, and measurability, resulting in 14 functional disability classes (FDCs). We conclude that FDCs can significantly improve the Dutch risk adjustment model, although possible incentives for oversupply have to be monitored.