More Demos Needed To Refine Risk Adjustment, Providers Say

Posted: Aug. 15, 2012

Providers say payers should allow multiple methods of measuring how expensive patients will be to treat and should consider socio-economic factors when developing such "risk adjustments" to avoid adverse selection and to make providers who treat sicker patients more likely to participate in pay-bundle programs. Accurate risk adjustments are crucial to making bundled payments feasible, but providers say it's not clear how best to account for variations among patients.

If the right risk-adjustment is not applied, high-cost outliers could conceivably wipe a providers profit margin, says Julius Hobson, who represents physicians as a senior policy adviser at Polsinelli Shughart.

Because bundling is still experimental -- and an accurate method is difficult to determine in the abstract -- CMS may want to consider a combination of pre-payment risk adjustment that could be reconciled after the fact in order to account for high-cost patients, says Paul Van de Water of the Center on Budget and Policy Priorities. This would give doctors more security in participating in bundling, Van de Water said, as risk adjustment is never going to completely account for outliers.

Kevin Bozic of the American Academy of Orthopaedic Surgeon says that creating effective and high quality bundled payments means motivating providers to supply high quality care, and that means allowing them to focus on factors that are in their control -- and appropriately risk-adjusting for the rest.

Bozic has been involved in bundled payment efforts at a hospital in California, and aims to participate in a hip and knee replacement bundle through the Center for Medicare and Medicaid Innovation (CMMI) demonstrations announcdd last year.

He said CMS has a choice when considering how to construct bundles for the CMMI demonstration -- either pay a little bit more to help adjust for provider risk, or limit those involved in the demonstration. One bundle Bozic has worked with limited bundled payments to relatively healthy patients.

That's a crude risk adjustment, Bozic said, but that is how the bundled payments are being handled early as providers and payers continue to experiment with bundled pay. The other extreme, Bozic said, would involve customized risk adjustment for each patient.

CMS tells Inside Health Policy that it will consider applicant proposals around risk adjustment, which must include a description of the risk adjustment methodology.

Peter Mandell, also of the AAOS, told Inside Health Policy that one way payers could potentially adjust bundled payments is by creating a basic payment that would cover cost of a bundled service, and add codes that would account for patient comorbidities and diagnoses -- like hypertension or diabetes -- that could complicate a procedure. However, Douglass Weaver, a former president of the American College of Cardiology, says that it is questionable whether administrative claims data would be enough to adequately assess patients' risk since a number of comorbid conditions are not coded very well.

Mandell also recently suggested to Congress that risk adjustment take into account not only diagnosed medical conditions, but "the medical, social, and personal patient factors that are beyond a provider's control, such as poor nutrition, tobacco and alcohol use, and non-compliance with treatment recommendations."

Hobson says that geography, right down to neighborhoods people live in, also needs to be taken into account. Geographic factors are crucial since many providers who would have the hardest time with bundled payments are likely in medically underserved areas and dealing with high-risk populations, he says.

Weaver agreed, and said that an accurate geographic adjustment would have to be done by neighborhood, especially in metropolitan areas, where conditions can change block by block.

Failure to apply accurate risk-adjusting methods could threaten patient access, sources say. Mandell recently testified that without the correct risk adjustment, providers have an incentive to select only those patients without significant risks, avoiding more complex patients who have a higher risk.

Bundled payments could carry unintended consequences, Mandell said in his written testimony to a Ways & Means hearing on reforming physician pay. Providers fearful of the risking financial loss could deliberately reject complex or risky patients, or could be incentivized to send them to other facilities, he said. Coherent risk adjustment policy is the best method to prevent providers from selecting against riskier patients and addressing how readmissions are handled with this payment method.

Bozic of the AAOS says that physicians could prevent bad outcomes by avoiding higher-risk patients more, but he says that is not the way doctors would prefer to approach the delivery system reform.

Weaver says that while bundling payments has had mixed results so far, he expects the model to improve as the demonstration proceeds. This is cutting new ground and experimenting, Weaver said, and all large physician groups are interested in the concept of bundles.

CMMI announced a bundled payment demonstration in 2011 that is distinctly different from CMS' Acute Care Episode bundled demonstration in that it includes post-acute care, and offered four models from which providers could choose. Three of the models included retrospective and one included prospective payments. Final applications for Models 2 -4 were due June 28. -- Michelle M. Stein