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