Risk Adjustment for the Medicare program: lessons learned from research and demonstrations

Area of Science:

• Health Policy
• Medicare Managed Care
• Health Economics

Background:

• The Balanced Budget Act of 1997 mandated significant changes to the Medicare program.
• Medicare's managed care component was restructured into "Medicare + Choice," expanding beneficiary options and altering payment schedules.

Purpose of the Study:

• To provide an overview of risk adjustment research and demonstration activities conducted by the Health Care Financing Administration (HCFA) since the 1980s.
• To describe a potential technical strategy for implementing risk-adjusted payments in Medicare managed care by the year 2000.

Main Methods:

• Review of historical Health Care Financing Administration (HCFA) research and demonstration projects.
• Description of a technical approach for risk-adjusted payment implementation.

Main Results:

• Years of research and development preceded the Balanced Budget Act's mandated changes.
• Risk-adjusted payment for Medicare + Choice, mandated for 2000, is a key developmental initiative.

Conclusions:

• The Balanced Budget Act necessitates substantial adjustments to Medicare.
• Risk adjustment is a critical component for the successful implementation of Medicare + Choice payments.