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

The Balanced Budget Act (BBA) of 1997 requires numerous changes in Medicare. Medicare's managed care program has been reinvented as "Medicare + Choice," offering an expanded range of delivery system options for beneficiaries and a schedule of payment changes that will dramatically affect managed care plans. Preceding some of these BBA-legislated changes to Medicare were years of research and demonstrations. Risk-adjusted payment in the Medicare + Choice program, which is mandated for implementation in 2000, is one example of a longstanding developmental initiative. This paper provides a brief overview of risk adjustment-related research and demonstration activities carried out by the Health Care Financing Administration (HCFA) since the 1980s, and describes a possible technical approach for the implementation of risk-adjusted Medicare managed care payments in 2000.