Diagnosis-Based Risk Adjustment
for Medicare Prescription Drug Plan
Payments
John Robst
Melvin Ingber
Jesse Levy
Centers for Medicare & Medicaid Services
The Drug Benefit – Part D
• Mandated by MMA; Starts in 2006
• Covers self-administered prescription drugs
not covered by Medicare Part B
• Beneficiaries may enroll in any one of the
prescription drug plans (PDPs) or Medicare
Advantage (MA)-PDPs in their region
• Formularies and prices are not standardized
• Premiums are set by bid and formula
The Drug Benefit – Part D
• Standard benefit, initial thresholds for beneficiary:
–
–
–
–
–
Monthly premium
(A) $250 deductible
(B) 25% coins. from $250 to $2250 total spending
(C) 100% coins. from $2250 to $5100 (out-of-pkt = $3600)
(D) above $5100, greater of (5% coins., $2 generic/preferred,
$5 brand)
• Plan pays in (B) and (D); is paid capitated amount by
Medicare for (B) and part of (D)
Bid to be Risk Adjusted
• Preferred approach by system implementers:
Capitated payment =
Bid * Risk factor * Geographic price index
• Bid - Average monthly cost incurred by plan
under standard benefit for person with national
average risk
Risk Adjustment Approach
• Build on underpinnings of prospective CMS-HCC
model for Part A and B services
– ICD-9 codes grouped into DxGs; DxGs grouped into HCCs
– Expected spending = f (age/sex, HCC1 … HCCn)
• Hierarchies of severity
• ICD-9 codes needed go beyond the abbreviated set
initially required for CMS-HCC model
– Conditions with low inpatient/ambulatory costs may have
significant drug costs – hypertension, high cholesterol….
Data
• Existing estimation data are far from perfect –
inadequate Medicare prescription drug data
• Data for predictors must be available for FFS
and managed care (MA) beneficiaries:
demographics and diagnoses
• Due to the lack of data, we can’t include prior
drug use in the model
Data
• Federal retirees with Medicare in the Blue Cross Blue Shield FEHBP
–
–
–
–
–
~ 1 million persons, 3 years (2000-2002)
Link to Medicare diagnosis files
No disabled under 65
Reasonable national representation after reweighting
No cap, 25% coinsurance for retail, copays for mail
order ($35 brand, $10 generic)
– Total enrollee and plan spending for each person
Estimation
• Linear additive model
• Model should have clinical credibility
–
–
–
–
Individual DxGs are grouped clinically
Hierarchies imposed
Models for total drug costs have R2 of about .25
Age/sex coefficients exceed deductible even in very
comprehensive model
• CMS announced new data requirements in May 2004
– Codes required were published based on preliminary models
Other Data and Adjustments to
Spending
• Other data: 5 percent Medicaid-Medicare dual
eligible sample from 1999/2000
• Policy makers required a low income subsidy and
an institutionalized subsidy in payments
• Start everyone on same basis – i.e., BCBS with
standard benefit
- Adjust Medicaid expenditures downward
- Adjust everyone downward
Model estimates - examples
Part D Continuing Enrollee Risk Adjustment Model
Spending
RXHCC Groups
RXHCC Labels
Mean dollars
RXHCC1
RXHCC17
HIV/AIDS
Diabetes with Complications
RXHCC19
RXHCC59
RXHCC65
RXHCC91
RXHCC109
DRXHCC65
Plan
Liability
2337
993
12314
1091
2028
256
Disorders of Lipoid Metabolism
Dementia w/ Depression/Behavioral Disturbance
Schizophrenia
Congestive Heart Failure
Asthma and COPD
397
1104
1268
717
638
162
220
248
250
162
age < 65 and RXHCC65
1678
373
1659
817
576
607
456
413
473
89
Female45_54
Female65_69
Female80_84
Age ≥ 65, female, orig. entitled to Medicare due to disability
Predictive Ratios
Predictive Ratios
Obs
856912
Age-sex
1.000
RXHCC
1.000
Plan Liability- Year 2 Predicted Plan Liability from RXHCC Model
FIRST (LOWEST)
85691
SECOND
85691
THIRD
85691
FOURTH
85691
FIFTH
85691
SIXTH
85691
SEVENTH
85691
EIGHTH
85691
NINE
85691
TENTH (HIGHEST)
85691
3.392
1.750
1.299
1.109
0.984
0.901
0.836
0.783
0.731
0.656
1.517
1.076
0.979
0.952
0.935
0.934
0.942
0.964
0.998
1.087
Prior Year Hospitalizations
0
1
2
3
4+
1.072
0.817
0.745
0.690
0.656
1.000
0.988
1.006
1.020
1.074
ALL ENROLLEES
685693
109555
38434
13944
11986
Predictive Ratios
Disease groups in the RXHCC model
RXHCC1
RXHCC9
RXHCC17
RXHCC19
RXHCC47
RXHCC60
RXHCC91
RXHCC102
HIV/AIDS
Metastatic Cancer, Leukemia, and Severe Cancers
Diabetes with Specified Complications
Disorders of Lipoid Metabolism
Osteoporosis and Vertebral Fractures
Dementia/Cerebral Degeneration
Congestive Heart Failure
Cerebral Hemorrhage and Effects of Stroke
1541
12325
64815
353942
96237
42323
114695
97059
0.338
0.782
0.716
0.847
0.852
0.804
0.754
0.785
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
5559
4013
2412
13078
92654
6931
362197
0.753
0.823
0.773
0.761
0.804
0.802
0.847
1.049
1.004
1.076
0.934
0.994
1.040
0.986
Disease groups not in the RXHCC model
RXHCC22
RXHCC26
RXHCC62
RXHCC68
RXHCC95
RXHCC161
RXHCC179
Protein-Calorie Malnutrition
Chronic Liver Disease
Drug/Alcohol Psychosis
Anxiety Disorders and Specified Symp/Synd
Valvular and Rheumatic Heart Disease
Decubitus Ulcer of Skin
Major Symptoms, Abnormalities
Subsidies
Low income
Group 1
Group 2
Income test
<135% FPL
<150%FPL
Asset test
<3XSSI
<10,000 single
<$20,000 couple
Multiplier
1.08
Insitutionalized
Predicted
Aged
Disabled
1183
1377
1.05
LTI Plan Liability
Actual
Multiplier
(Actual/Predicted)
1273
1668
1.08
1.21
Geographic Price Adjuster
• MMA: Test for geographic price variation;
adjust if needed
• 34 geographic regions
• Data sources
– IMS, Verispan, BCBS
– Variation in drug prices for third party payers
– Indexes vary depending on method and market
basket