A practical method of adjusting for risk in the prospective costs of capitated systems

Increasingly, providers of health services and medical groups are required to negotiate with managed care organizations and evaluate the adequacy of capitation rates. An intelligent assessment of the rate of payment requires an accurate projection of the costs per member per month that have been adjusted for the risk present in the insured population. This article develops a practical model for incorporating risk in forecasts of the full cost per member per month.