Health-Based Risk Assessment: Risk-Adjusted Payments and Beyond

AcademyHealth is the national program office for HCFO, an initiative of The Robert Wood Johnson Foundation. A number of payers across the country, including Medicaid managed care programs, the Medicare+Choice program, some state employee programs, and a few private purchasing cooperatives, have adjusted their payments based on health status. Researchers generally agree that most health-based risk-assessment tools, which are used to determine how much a payment should be adjusted, provide comparable levels of predictability, and a variety of tools are in use today. As payers have gained more experience with these tools and the concept of health-based risk assessment, both the concept and tools have become accepted more widely. There are differences, however, among levels of implementation in various markets. One persistent question is why risk adjusted payments are more common in publicly financed programs than in the employer-based insurance markets. This question is particularly important given the ever-increasing fragmentation of the private insurance market, as employers opt for " consumer-directed " and other high-cost-sharing plans. In addition to concerns about risk pool fragmentation, there is a growing understanding, highlighted by the Institute of Medicine's 2001 report Crossing the Quality Chasm, that quality of care must be improved. Risk-assessment tools originally developed to modify payment and expand access are now also being used to improve quality. To better understand the benefits and shortcomings of risk assessment and adjustment as vehicles for maintaining viable risk pools and guiding medical management toward high-quality care and access to insurance coverage, The Robert Wood Johnson Foundation's Changes in Health Care Financing and Organization (HCFO) program and the Kaiser Permanente Institute for Health Policy brought together risk adjustment experts, public and private purchasers, and representatives from health plans to discuss their experiences. They addressed the roles that risk assessment and adjustment have played in keeping risk pools intact. Attendees also explored the role of risk assessment in helping health plans and providers improve quality of care through a variety of innovative uses such as predictive modeling, high-cost care identification, provider profiling, and identification of patients for disease management programs. They also considered the barriers to more widespread use of risk-assessment tools for adjusting payments and other innovative uses. The purpose of this report is to explain the underlying concepts and tools critical to those considering a variety of risk assessment applications. It summarizes the experiences to date in three market sectors: Medicare, Medicaid, and the …