Risk Adjustment and its Applications in Global Payments to Providers

Health care reform calls for fundamental changes in health insurance and provider payment, in which risk adjustment plays an important role. This paper, prepared by Milliman Inc. for the the Massachusetts Medical Society, discusses the use of risk adjustment in provider payment reforms. It is intended for for provider organizations that are about to enter into global payments or are already in such a program.

We begin with a general description of risk adjustment, why it is needed, and how it has been used in healthcare financing and delivery. We then describe the risk scoring and fund allocation process in detail by walking through an example. In the next sections, we discuss the main characteristics of risk adjustment models and the key considerations when applying risk adjustment in global payment such as:

  • The selection of a risk adjustment methodology
  • The choice between concurrent and prospective models and how payments are organized
  • Input data for risk adjustment, clinical validity, and the importance of coding
  • The credibility of risk adjustment with regard to partial eligibility and patient assignment
  • How risk adjustment works together with other risk mitigation programs, such as reinsurance and use of a risk corridor

Download the report. (.pdf, 13 pages, 120 kb)

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