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Risk adjustment and Medicare: taking a closer look
J P Newhouse1, M B Buntin, J D Chapman
1Harvard University, USA.
Health Affairs (Project Hope)
|October 7, 1997
Summary
Diagnosis-based reimbursement improves Medicare managed care payments by addressing selection and stinting issues. Large-scale demonstrations are recommended for this improved payment adjustment method.
Area of Science:
- Health economics
- Managed care policy
- Medicare reimbursement
Background:
- Current Medicare reimbursement for at-risk managed care plans faces challenges with adverse selection and service underprovision (stinting).
- Beneficiary selection, where higher-cost individuals remain in traditional Medicare, distorts risk adjustment and payment accuracy.
- Underprovision of services by managed care plans can compromise quality of care and patient outcomes.
Purpose of the Study:
- To evaluate the effectiveness of diagnosis-based reimbursement adjustments for Medicare managed care plans.
- To propose alternative payment methodologies that mitigate selection and stinting problems.
- To assess the implications of proposed payment reforms on Medicare's financial stability and beneficiary access to care.
Main Methods:
- Analysis of Medicare's current reimbursement system and its inherent vulnerabilities to selection bias.
- Evaluation of diagnosis-based payment adjustments as a potential solution to improve risk adjustment accuracy.
- Comparison of diagnosis-based adjustments with other proposals, such as payment reductions and reinsurance.
Main Results:
- Diagnosis-based reimbursement adjustments offer substantial improvements over current methods for managing risk in Medicare managed care.
- Reducing payments alone addresses short-term overpayments but fails to resolve the underlying selection problem.
- Blending traditional Medicare with risk-adjusted capitation, including basing some payment on actual enrollee use, effectively addresses selection and stinting.
Conclusions:
- Diagnosis-based reimbursement is a promising strategy to enhance the accuracy and fairness of Medicare managed care payments.
- Large-scale demonstrations of diagnosis-based reimbursement are warranted to validate its effectiveness and refine implementation.
- A blended payment approach, incorporating elements of traditional Medicare and risk-adjusted capitation, offers a robust solution to selection and stinting.