My presentation at the Society of Actuaries Annual Meetings, October, 2009

1. Session 28 PD: Public Programs for
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Medical Risk Adjustment in the US
Benefits, Challenges, and New Directions
Presented by
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Rong Yi, PhD
Senior Consultant
October 26, 2009
Rong.Yi@Milliman.com
Tel: (781) 213 6275

2. Challenges in Selecting a Risk Adjustment
System for a New Program
Diagnosis-based pharmacy-based
Diagnosis based or pharmacy based risk adjustment?
– Dx models are sensitive to coding quality and completeness of data
– Medicare Advantage revenue optimization services & claim audits
– Rx models are closely tied with utilization, and are sensitive to
prescription patterns
– specialty pharmacy data is not in outpatient Rx claims
– prescription OTC
– thousands of new NDC codes every year
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3. Challenges in Selecting a Risk Adjustment
System for a New Program (cont.)
Risk adjust all or a subset?
– Reinsurance and topcoded models
– Carved out benefits
Partial eligibility.
– Need proper weighting and normalization mechanisms for:
• Members with <12 months of eligibility
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• Membership movements among MCOs during open enrollment
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4. Challenges in Selecting a Risk Adjustment
System for a New Program (cont.)
Model recalibration
– Does the off-the-shelf model need to be recalibrated?
• Off-the-shelf model may not fit because:
Off the shelf
– Too old
– Represents different geography and socioeconomic mix
– Different benefit coverage
• Readiness of the client data – sample size and data quality
– How often does a risk adjustment model need to be recalibrated?
• Dx based models have a longer “shelf life”
– Examples: MA Medicaid, MA Connector Authority
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5. Not Perfect but the Benefits are Real
Government payers: level off playing field for private health
plans, encourage market participation and competition, drive
down cost, improve quality of care
– Risk adjustment mentioned in health reform bills
– Increased interest in risk adjustment in other countries
Private health plans: fairer competition (some) guarantee on
competition,
revenue in adverse risk selection
Example: MA Connector Authority
– Flat premium without changing benefits or cost-sharing
– More MCOs in the program
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6. New Directions
So far, risk adjustment is primarily used in contracting and
payments between government payers and private health
plans.
What’s next?
– Risk-based contracting between provider organizations and health
p a s o change e delivery of care
plans to c a ge the de e y o ca e
• BCBS MA Alternative Quality Contract
• Risk adjusted utilization targets ( g avoidable ER use, high cost drugs,
j g (e.g., g g
referral patterns, high cost imaging tests)
• Episode based provider reimbursement
• Patient-centered medical home
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