Risk-adjusted Medicare capitation rates using ambulatory and inpatient diagnoses

Health Care Financ Rev. 1996 Spring;17(3):77-99.


Researchers at The Johns Hopkins University (JHU) developed two new diagnosis-oriented methodologies for setting risk adjusted capitation rates for managed care plans contracting with Medicare. These adjusters predict the future medical expenditures of aged Medicare enrollees based on demographic factors and diagnostic information. The models use the Ambulatory Care Group (ACG) algorithm to categorize ambulatory diagnoses. Two alternative approaches for categorizing inpatient diagnoses were used. Lewin-VHI, Inc. evaluated the models using data from 624,000 randomly selected aged Medicare beneficiaries. The models predict expenditures far better than the Adjusted Average per Capita Cost (AAPCC) payment method. It is possible that risk adjusted capitation payments could encourage health plans to compete on the basis of efficiency and quality and not risk selection.

Publication types

  • Research Support, U.S. Gov't, Non-P.H.S.

MeSH terms

  • Aged
  • Aged, 80 and over
  • Algorithms
  • Ambulatory Care / economics*
  • Capitation Fee*
  • Centers for Medicare and Medicaid Services, U.S.
  • Disability Evaluation
  • Female
  • Health Care Costs
  • Hospitalization / economics*
  • Humans
  • Insurance Selection Bias
  • Male
  • Medicare / economics*
  • Models, Economic
  • Rate Setting and Review / methods*
  • Regression Analysis
  • Risk Management
  • United States