Refinements to the CMS-HCC
Model For Risk Adjustment of
Medicare Capitation Payments
Presented by:
John Kautter, Ph.D.
Gregory Pope, M.S.
Eric Olmsted, Ph.D.
RTI International
Contact: John Kautter, PhD, jkautter@rti.org
RTI International is a trade name of Research Triangle Institute.
History of Medicare Risk
Adjustment

Demographics (AAPCC)
 Doesn’t explain cost variation
 Favorable selection => higher program costs

Principal inpatient diagnoses (PIP-DCG model,
2000)
 Incentive to admit
 Penalizes plans that avoid admissions

Inpatient and ambulatory diagnoses (2004)
2
CMS-HCC Model

Centers for Medicare & Medicaid Services
(CMS) Hierarchical Condition Categories
(HCC) model

Prospective

Inpatient and outpatient diagnoses w/o
distinction

70 diagnostic categories (HCCs)

Hierarchical within diseases
3
CMS-HCC Model (continued)

Cumulative (additive) across diseases

6 disease interactions

Discretionary diagnoses are excluded

Demographic factors included

Calibrated on 1999/2000 Medicare 5% Sample
4
CMS-HCC Model
Performance

Percentage of cost variation explained
 Age/Sex:
0.8%
 PIP-DCG:
5.5%
 CMS-HCC:
10.0%
5
CMS-HCC Models for
Medicare Subpopulations

Disabled

End-stage renal disease

Institutionalized

New enrollees

Secondary payer status

Frail elderly
6
Disabled

Over 10% of Medicare population

Under age 65

Model estimated separately for aged and
disabled



Overall cost patterns similar
For 5 diagnostic categories, incremental
expense of the disabled is higher
5 disease interactions for disabled in final CMSHCC model
7
End-Stage Renal Disease

About 1% of Medicare population

Very expensive: approximately $50,000/year

3-segment model



Dialysis patients
 CMS-HCC model calibrated on dialysis
patients
Transplant period (3 months)
 Lump-sum payment
Post-transplant period
 Aged/disabled CMS-HCC model w/addon for drugs
8
Institutionalized Beneficiaries

About 5% of Medicare population

Costly, but less expensive than community
residents for same diagnostic profile

Combined CMS-HCC model
 Overpredicts costs for institutionalized
 Underpredicts costs for community frail
elderly
9
Institutionalized Beneficiaries
(continued)

Different cost patterns by age and diagnosis for
community and institutionalized

CMS-HCC model calibrated separately on
community and institutionalized

Current year institutional status reported by
nursing homes
10
New Enrollees

Lack 12 months of base year enrollment

Two-thirds are 65 year olds

New enrollees versus continuing enrollees


Much less costly at age 65
Similar costs at other ages

Merged new/continuing enrollee sample

Separate cost weights for 65 year olds

Demographic model
11
Medicare as Secondary Payer

Beneficiaries with active employee employersponsored insurance

Costs are lower

Multiplier scales cost predictions down

Multiplier is ratio of mean actual to mean
predicted expenditures
12
Frail Elderly

Diagnosis-based models underpredict
expenditures for the functionally impaired

Medicare specialty plans (e.g., PACE) serve
functionally-impaired populations

Frailty adjuster to better predict their costs
 Predicts costs unexplained by CMS-HCC
 Based on difficulties in ADLs
 ADLs collected from surveys or assessments
13
CMS-HCC Model
Refinements

Additional HCCs added to model

100% institutional sample used for institutional
model calibration

Changes in diagnostic classification

2002/2003 Medicare FFS data used for
calibration of all models
14
Availability of Additional
HCCs

For Part D risk adjuster, plans required to submit
diagnoses for 127 HCCs

Additional 57 HCCs available for CMS-HCC
models (127 – 70 = 57)
15
Adding HCCs

Benefits
 Greater accuracy in predicting illness burden
 Rewards plans who enroll and treat
beneficiaries with these diagnoses
 E.g., Special Needs Plans (SNPs)

Drawbacks
 Creates greater opportunities for diagnostic
“upcoding”
16
HCCs Added to CMS-HCC
Model

Available additional HCCs reviewed by project
team to determine which were appropriate for
payment model

Number of HCCs increased from 70 to 101
17
Examples of HCCs Added to
CMS-HCC Model
HCC
“Refined” CMS-HCC Model
Community Institutional
Type I
Diabetes
Mellitus
$1,557
Dementia/
Cerebral
Degeneration
$1,576
Hypertension
$388
$1,435
−−
$919
18
100% Institutional Sample

CMS-HCC institutional model calibrated on 5%
institutional sample (n = 65,593)

To increase statistical accuracy and stability,
“refined” CMS-HCC institutional model
calibrated on 100% institutional sample
(n = 1,238,842)
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Distribution of Annualized
Medicare Expenditures, 2003
5% Community 100% Institutional
Sample Size
1,380,978
1,238,842
Expenditures
Mean
$6,541
$11,252
95th Percentile
90th Percentile
Median
10th Percentile
5th Percentile
$31,285
$17,682
$1,445
$56
$0
$47,390
$31,553
$3,028
$538
$349
20
Changes in Diagnostic
Classification

Diabetes complications moved to diabetes
hierarchy
 E.g., diabetic neuropathy moved from HCC
71 Polyneuropathy to HCC 16 Diabetes with
Neurologic or Other Specified Manifestation

HCC 119 Proliferative Diabetic Retinopathy and
Vitreous Hemorrhage deleted and most moved to
HCC 18 Diabetes with Ophthalmologic or
Unspecified Manifestation

Cerebral Palsy consolidated in HCC 70 Cerebral
Palsy and Muscular Distrophy
21
Refined CMS-HCC Community
and Institutional Models
CMS-HCC
Community
Institutional
% of Cost
Variation
Explained
# HCCs
9.8%
6.0%
70
69
“Refined” CMS-HCC
Community
11.0%
Institutional
8.9%
101
90
22
Refined CMS-HCC Model
Performance – I

Predictive ratios, prior year expenditure quintiles
Age/Sex
CMS-HCC
First
2.65
1.20
Second
1.82
1.19
Third
1.31
1.09
Fourth
0.91
0.99
Fifth
0.46
0.90
23
Refined CMS-HCC Model
Performance – II

Predicted ratios by CMS-HCC predicted
expenditure deciles
First
Second
Third
Fourth
Fifth
Sixth
Seventh
Eighth
Ninth
Tenth
Age/Sex
2.84
2.43
2.10
1.70
1.49
1.27
1.06
0.86
0.64
0.35
CMS-HCC
0.88
0.92
0.94
0.97
0.97
1.00
1.01
1.04
1.04
1.00
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Conclusions

Medicare risk adjustment has been evolving
 Demographic  Inpatient  All-Encounter
(AAPCC)
(PIP-DCG) (CMS-HCC)

The “refined” CMS-HCC model represents a
more comprehensive all-encounter risk
adjustment model
 Increases payment accuracy for plans
 Viability of plans
– Beneficiaries’ access to plans
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