Risk-Adjustment of Prescription Drug Expenditure in Ireland

The general medical services scheme in Ireland provides free primary health care to low income families and other vulnerable groups. Expenditure on prescription medicine on the scheme is risk-adjusted using a simple age and gender model. This paper extends the number of risk adjusters to include other demographic and socio-economic factors, chronic illness indicators based on the chronic disease score methodology, access to health services and provider characteristics. New measures of a GP’s propensity to prescribe are proposed. One-part and two-part models of healthcare expenditure are compared against a battery of model selection criteria, including prediction error, prediction variation, prediction bias, concentration indices and prediction error for vulnerable groups. Using data on 400,751 individuals, we find that the inclusion of chronic illnesses provides a significant improvement over a demographic model, while the further inclusion of supply-side variables has very modest effects. We find evidence that two-part models may be subject to considerable prediction bias.