reports

Risk adjustment in state Medicaid programs

Health Watch :14-17, 32-34.

Denver, Colorado, office of Wakely Consulting Group

This article discusses some of the most important considerations in implementing risk adjustment within a Medicaid Managed Care Program. The University of Maryland, Baltimore County (UMBC) and Actuarial Research Corporation published a more detailed guide, entitled “A Guide to Implementing a Health-Based Risk-Adjusted Payment System for Medicaid Managed Care Programs.” This article includes references to this guide among other sources.¹
            Risk adjustment systems that use claims data were first developed in the late 1980s. Prior to the development of risk adjustment systems, rates were primarily based on age, gender, geographic region and other demographic characteristics. However, these methods generally have much lower predictive power than methods based on diagnoses and historic healthcare utilization data, especially for the more chronically ill Medicaid disabled populations.
Risk Adjustment models measure the relative morbidity of individuals. The tools use demographic and health care claims data to develop these morbidity measures. The tools that are currently being used in Medicaid Managed Care capitation rate setting are CDPS, Medicaid Rx, ACGs, CRxGs and DxCGs. These tools use various algorithms that assign each person into demographic and morbidity or disease categories. Each of these categories is assigned a risk weight based on historic relationships between members in these categories and overall healthcare expenditures for these individuals.