Exploring Episode-Based Approaches for Medicare Performance Measurement, Accountability and Payment Final Report. Risk Adjustment of Episodes of Care for Payment and Performance Measurement


Most proposals in the literature acknowledge the need to risk-adjust episodes of care for payment and some types of performance measurement, particularly for outcome measures, but little detail on specific risk-adjusters is usually provided.  Some articles stated that when the focus is on cost/resource use, it is appropriate to use adjusters that explain variation in the time and costs of services provided instead of health outcomes (Goroll et al., 2007; Network for Regional Healthcare Improvement, 2007) .  This suggests that two separate sets of risk adjustment may be appropriate for joint assessment of episode quality and resource use.

Several existing risk-adjusters used in payment/resource use measurement could be applied to episodes of care.  Inpatient hospital facility payments are currently adjusted using severity-adjusted diagnosis-related groups (MS-DRGs); these could potentially be used to risk-adjust other services bundled in with the inpatient stay.  The episode groupers ETGs and MEGs include concurrent (i.e., based on the same time period covered by the episodes) episode-level severity and patient-level risk adjusters.  However, one study found that risk scores for ETGs were essentially unrelated to episode costs (Thomas, 2006).  On the contrary, another study found that risk adjustment increased explanatory power for costs for a different episode grouper, Common Treatment Categories (Brailer and Kroch, 1999).  MedPAC found that when risk adjusters are applied, patients in higher risk categories have higher average per-episode costs (MedPAC, 2006). The IOM identified risk adjustment and its appropriate use as an area requiring additional research in its report Rewarding Provider Performance (Institute of Medicine Committee on Redesigning Health Insurance Performance Measures, 2007).

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