Data on the severity of hospital inpatient encounters will be one of the key factors HCFA uses to adjust Medicare reimbursements for health plans, including provider-sponsored organizations, according to an outline of the new reimbursement formula released last week.
While highly technical, the risk adjustment mechanism is important to health plans because it can affect reimbursement rates significantly. Under a risk-adjustment system, plans would receive higher reimbursement for more costly patients. Several recent studies have estimated that when fully implemented, the risk adjustments could vary payments by more than 10%.
For PSOs, the effect could be even greater. Most of the PSOs operating under a HCFA demonstration project say they have attracted a population that is less healthy than the general Medicare population, which means they have higher expenses.
"This will make a huge difference to anyone who wants to participate in the (Medicare) market, especially if you attract a sicker population," said Laura Thevenot, executive vice president of the Federation of American Health Systems, which represents investor-owned hospitals.
James Jacobson, an attorney with Gardner, Carton & Douglas in Washington, said by moving to a risk-adjusted payment system, HCFA can keep plans from enrolling only healthier patients.
"This will move (Medicare) away from a cherry-picking atmosphere, if it really works, that is," Jacobson said.
The new risk factors, which will include inpatient hospital data and demographic information, will be beneficiary-specific.
For example, a patient hospitalized twice during a year for cardiac arrest will be given a higher risk factor than a patient who was not admitted as an inpatient. Other adjustments will be made based on a patient's age, sex and location.
Under last year's balanced-budget law, the new risk adjustment system is scheduled to be implemented by Jan. 1, 2000. However, HCFA said it will not begin collecting data from hospital outpatient departments and physicians until Oct. 1, 1999, at the earliest. Therefore, the first risk adjustments will be based on hospital inpatient data only.
Deborah Williams, senior associate director of policy for the American Hospital Association, said she was concerned about the quality of the data being submitted by hospitals that will be used to determine the risk adjustments.
"Hospital weren't geared up to collect this data, and I know for a fact it's not very good," Williams said.
The encounter data collected by HCFA will be audited to ensure that it is accurate, HCFA said in the regulation.
HCFA also announced in its notice in the Sept. 8 Federal Register that it will hold a meeting at its Baltimore headquarters Sept. 17 to give more details about the risk adjustment system. Comments on the proposal must be submitted to HCFA before Oct. 6.