Risk adjustment

Question 1

What do you consider when choosing a risk adjustment method?

Answer 1

• Is the insured peril related to mortality, morbidity, retrenchment etc?
• What is the time frame under consideration? [When]
  
  • E.g. during acute in-hospital admission, next month or over a year?
• What population is being considered? [Who]
  
  • E.g. in-hospital patients, paediatric population, insured lives or intensive care unit patients?
• What is the purpose? [Why]
  
  • E.g. contracting with healthcare providers, pricing, budgeting or monitoring?

Question 2

What are risk adjustment factors

Answer 2

• Stuff individual is born with
  
  • Age
  • Gender/sex
  • Race and ethnicity
• Health status of individual
  
  • Acute clinical stability
    
    • Physiological functioning as indicated by homeostatic measures such as vital signs etc.
  • Principal diagnosis
    
    • Measured by the WHO’s International Classification of Diseases (ICDs)
  • Co-morbidities
  • Functional status
    
    • Basic ADLs and instrumental ADLs
• Stuff individual has some control over
  
  • Socio-economic status
  • Lifestyle factors
    
    • Tobacco use, alcohol use, use of illicit drugs, sexual practices, diet and nutrition and obesity.
  • Access to benefits / insurance option

Question 3

What are supply side factors?

Answer 3

• Technology
• Medical staff
• Number of beds
• Infrastructure
• Policies, procedures and protocols
• Hospital types/speciality

Question 4

What are the demand side factors

Answer 4

• Demand influence by risk profile of individual (demographc risk factor vibes)
  
  • Age
    
    • older individuals require more frequent + severe hospitalization
    • newborns might need ICU treatment
  • Gender/sex
    
    • females of childbearing age, increase hospitalisation due to child birth
    • older men hospitalised more than females
  • Chronic conditions
    
    • the more chronic conditions the more frequent + severe hospitalization
• Demand influenced by geographical location (case mix vibes)
  
  • Hospital close to factories/hazardous operations = more accidents admitted
  • Availability of primary healthcare services influences admission rates
  • Location may impact admission rates

Question 5

What are the different purposes of risk adjustment?

Answer 5

Budgeting
Pricing and reserving
Measuring efficiency
Measuring healthcare outcomes
Risk management
Provider profiling

Question 6

Purpose: Budgeting

Answer 6

• State needs to distribute hospital budgets according to the underlying demand of patients in districts measured by diagnosis related groups (DRGs)
• DRGs – common clinical classification systems used to risk-adjust hospital costs
• E.g. DRG 470 is used to classify cases involving major joint replacement or reattachment of lower extremity without major complications or comorbidities

Question 7

Purpose: pricing and reserving

Answer 7

• PMI insurers, need to allow for variation (in demographics) of their policyholders, as new people take up policy and lapse policy daily.
• By inputting the demographic and health characteristics of the new group into the risk adjustment model, the insurer can estimate the relative risk of the group compared to its existing policyholder population.
• The model can quantify the expected healthcare costs of a new group of lives purchasing PMI, as well as the required levels of risk reserves

Question 8

Purpose: measuring efficiency

Answer 8

• Adjusting for patient mix is necessary when comparing costs between providers (e.g. large no of patients undergoing neurosurgery)
• Comparing facility efficiency is useful for:
  
  • Price negotiations for purchasers and suppliers of healthcare
  • Network selection for insurance plans
  • Managing facilities efficiently

Question 9

Purpose: measuring healthcare outcomes

Answer 9

• Healthcare inflation generally exceeds general inflation
• Many funders make purchasing decisions and insurers design benefits to channel patients through cost-efficient providers but quality is important too as it speaks to the value of the providder.
• By comparing a provider’s risk-adjusted outcomes to benchmarks or peer providers, healthcare organizations can pinpoint specific areas where they may be underperforming and target quality improvement initiatives accordingly.

Question 10

Purpose: risk management

Answer 10

• ALL TO DO WITH MANAGING COSTS
• If healthcare budget exceeded must understand if it is due to demand and/or supply factors
• Costs may increase due to:
  
  • More expensive treatment patterns
  • Operational inefficiencies
  • Open enrolment and community rating → can’t risk select (required by legislation)
• After adjusting for the underlying change in demand (risk-adjusting cost increases), insurers can identify the inflationary impact of changes in supply-side behaviour within an admission

Question 11

Purpose: provider profiling

Answer 11

• To support sustainable healthcare, many healthcare insurers share information with doctors on their generated costs compared to their peers on a like-for-like basis → increases awareness among doctors on the economic impact of their clinical decisions.

Question 12

What is a case weight in DRG?

Answer 12

A case weight of a DRG indicates how much more expensive/cheaper the average cost of the DRG is relative to the overall average cost of hospital admissions in the time period

Question 13

What does a case mix of 1.2 indicate?

Answer 13

E.g. case mix index of 1.2 means average cost per admission is expected to be 20% more expensive that average cost per admission used to set cost weight.

Question 14

What are reasons for high case mix index?

Answer 14

There are several reasons why a healthcare facility may have a high case mix index (CMI). A high CMI indicates that the facility treats patients with more severe or complex conditions, requiring more resources and specialized care. Here are some reasons for a high case mix index, along with explanations:

1. Specialized facility:
   
   • Academic hospitals or tertiary care centers often have a high CMI because they tend to treat more complex and severe cases referred from other hospitals.
   • These facilities have advanced technology, specialized equipment, and highly trained staff to handle complicated procedures and treatments.
2. Clinic type:
   
   • Day clinics or rehabilitation centers may have a high CMI because they focus on specific patient populations with more complex needs.
   • For example, a rehabilitation center may treat patients recovering from severe injuries, strokes, or complex surgeries, requiring intensive therapy and specialized care.
3. Presence of super specialists:
   
   • Healthcare facilities with a higher number of super specialists, such as neurosurgeons, cardiac surgeons, or oncologists, tend to have a higher CMI.
   • These specialists treat patients with more severe or rare conditions that require advanced expertise and specialized treatments.
4. Demographics:
   
   • Facilities serving older populations or communities with higher rates of chronic diseases may have a higher CMI.
   • Older patients and those with multiple chronic conditions often require more intensive care and resources.
5. Regional referral center:
   
   • Hospitals that serve as regional referral centers for specific conditions or treatments may have a higher CMI.
   • These facilities receive patients from a wider geographic area who require specialized care not available at their local hospitals.
6. Research and innovation:
   
   • Hospitals engaged in extensive research and innovation may attract patients with more complex conditions seeking advanced treatments or clinical trials.
   • These facilities may have a higher CMI due to the nature of the patients they serve and the cutting-edge treatments they provide.
7. Coding practices:
   
   • The accuracy and specificity of diagnostic and procedure coding can impact a facility’s CMI.
   • Facilities that consistently use more detailed and specific codes may have a higher CMI, as these codes often reflect more complex conditions and treatments.
8. Case management and discharge planning:
   
   • Effective case management and discharge planning can help facilities manage patients with complex conditions more efficiently, potentially leading to a higher CMI.
   • By coordinating care and ensuring appropriate post-discharge support, these facilities can safely treat more complex patients while managing costs.

Understanding the factors contributing to a high case mix index can help healthcare facilities allocate resources effectively, plan for staffing and equipment needs, and ensure they are adequately reimbursed for the complex care they provide. It is essential for facilities to monitor their CMI and adapt their services and resources accordingly to meet the needs of their patient population.