Editorial - Vol 6, No 3: Risk Adjustment in Health Care Purchasing

This month’s edition of Healthcare Review – Online^TM considers health-based risk adjustment in health care purchasing.

Competition between health insurers can provide incentives for efficiency and responsiveness. However, where an individual has a choice of insurance plans, insurers may compete for healthier individuals while those who are less healthy are excluded or charged significantly higher premiums, a phenomenon known as cream-skimming. As a result of cream-skimming, those most in need of care can find it difficult to afford. Risk adjustment arrangements can help to overcome this ^{[ 1 ]}.

Risk adjustment has been used successfully to create equity in health care in some regions of the US. One example is the California programme designed to give small employers and the HMOs that serve them the same advantage that larger participants enjoy ^{[ 2 ]}.

Adequate risk adjustment is critical to the success of market-oriented health care reforms in many countries ^{[ 3 ]}. This edition focuses on the application of risk adjustment in the US health care market.

Deborah Rogal, Senior Manager, Academy for Health Services Research and Health Policy, Washington DC, USA, provides a paper that describes risk adjustment efforts in the US and summarises lessons learned to date.

She reviews the "road to risk adjustment", summarising developments in risk adjustment in the US. She notes that addressing the issue of risk segmentation in the health insurance market is a two-step process involving both risk assessment and risk adjustment.

A variety of tools have been developed for assessing risk in different population groups and risk pools. These tools, in turn, have been used as part of risk adjustment mechanisms in the private market, for state employee groups, for Medicaid, and for Medicare.

Rogal highlights the great strides taken by researchers, health plans, employers and policymakers toward addressing risk segmentation in the health insurance market. She notes, however, that despite significant investment in the development of risk assessment tools and strategies for implementation, health-based payments have not been widely adopted in the private insurance market, nor universally adopted among public payers.

Beau Carter, Executive Director, Integrated Healthcare Association (IHA) ^{[ 4 ]}, provides a paper that reviews key aspects of risk adjustment, including the need to adjust for quality of care delivered, not just for risk factors among managed care enrollees and patients.

He highlights that risk adjustment systems must be designed to suit different situations and must have a significant enough effect among HMOs (health maintenance organisations) and/or among provider organisations to balance the effort and investment required to develop the system.

He stresses the importance of the availability of timely and accurate encounter data, the need for a carefully planned transition from the existing system to initial implementation of a risk adjustment model, and the need for measurement and reporting of service quality and the adjustment of payments on this basis.

In conclusion, he notes that the difficulties inherent in risk adjustment should not be used as a reason to avoid experimentation and testing, but neither should risk adjustment be regarded to be a universal good. It must be approached with the same care as any investment - by picking the right time and place and maximising the returns.

In a paper to be added to the journal in late July, David Knutson, principal investigator in the "Risk Adjustment Impact Study", will provide a summary of findings to date from the study.

The three-year "Risk Adjustment Impact Study" on health-based risk adjustment aims to answer two questions: how is health-based risk adjustment implemented and what is the impact of health-based risk adjustment on purchasers and on managed care organisations?

In particular, Knutson will address the issue of whether purchaser characteristics influence how health-based risk adjustment is implemented.