reports

Updating and calibrating the Johns Hopkins University ACG/ADG risk adjustment method for application to Medicare risk contracting

Final report to Health Care Financing Administration. Baltimore, MD, USA: Johns Hopkins University.

Johns Hopkins University, Baltimore, MD, USA

The Balanced Budget Act (BBA) of 1997 (Public Law 105-33) enacted significant changes to the Medicare Program. Under the BBA, the Secretary of Health and Human Services was directed to implement risk adjustment for capitated payments to Medicare risk-contract Health Maintenance Organizations (HMOs).
As of January 2000, inpatient diagnosis codes are being used to adjust prospective capitation payments to Medicare+Choice HMOs. On or after January 1, 2004, the Health Care Financing Administration (HCFA) expects to implement a “comprehensive” adjuster based on both ambulatory and inpatient diagnosis codes. The Johns Hopkins Adjusted Clinical Group (ACG) System is one such comprehensive risk adjustment methodology.
In 1995, under a HCFA Office of Research and Demonstration contract, the Johns Hopkins University (JHU) developed diagnosis-based risk adjuster models for use in setting capitation rates for HMOs and other pre-paid health plans contracting with HCFA for  the care of Medicare beneficiaries (The Lewin Group/Johns Hopkins University, 1996, and Weiner et al., 1996). These diagnosis-based risk adjustment models were based on the JHU ACG Case-Mix System, an established methodology for categorizing ICD-9-CM diagnosis codes. ACGs place individuals into categories based on their age, gender, and morbidity (measured using inpatient and ambulatory diagnoses over a defined period (usually one year)). Today, ACGs are used by over 150 private health plans to adjust capitation payments and profile resource use. Most commercially available software profiling packages integrate ACGs. In addition, more than 100 domestic and international researchers are also using ACGs. Finally, several public programs, including two state Medicaid agencies (Maryland and Minnesota), the Department of Veterans Affairs, and the Canadian provincial government of British Columbia now use ACGs to set capitated payments or profile physician resource utilization.
The current HCFA contract has two goals: 1) re-calibrating the original model based on “current” (1995-1996) Medicare data; and 2) providing software that will enable HCFA to easily implement and test the model. The re-calibration effort involved updating the risk assessment variables to reflect the most recent improvements in the ACG System, and integrating the under age 65 disabled Medicare population so that a single model may be applied to all HCFA data. A SAS-based software package has been developed and provided to HCFA as a separate deliverable of this contract to allow the model to be tested and implemented.