Setting payment rates for capitated systems: a comparison of various alternatives

Area of Science:

• Health Economics
• Medicare Policy
• Healthcare Payment Systems

Background:

• The current Adjusted Annual Per Capita Cost (AAPCC) method for Medicare Health Maintenance Organization (HMO) payments faces numerous revision proposals.
• Prior utilization has been identified as a promising alternative for improving payment accuracy.

Purpose of the Study:

• To statistically compare the existing AAPCC method with three distinct prior utilization models.
• To evaluate the predictive accuracy of these models for Medicare beneficiary expenditures.

Main Methods:

• Comparative analysis using statistical and other criteria.
• Evaluation of three prior utilization models against the current AAPCC method.
• Utilized cross-section and risk-selected samples of aged Medicare beneficiaries.

Main Results:

• All three prior utilization models demonstrated superior accuracy in predicting expenditures compared to the AAPCC method.
• The Payment Amount for Capitated Systems (PACS) model exhibited the highest accuracy in predicting actual expenditures.
• Models proved effective for both individual and group predictions.

Conclusions:

• Prior utilization models offer a more accurate approach to Medicare payment than the current AAPCC.
• The PACS model is the most accurate among the evaluated prior utilization measures for predicting healthcare costs.
• Revising Medicare payment structures with prior utilization data can enhance financial predictability.