Chapter 10 Risk adjustment Flashcards

-Evaluate the nature of risk facing the insurer. -Describe the principal modelling techniques appropriate to health and care insurance.

1
Q

What is risk adjustment? (3)

A
  • an important part of any well-functioning healthcare system is being able to evaluate utuilisation, effectiveness and/or cost of healthcare given
  • when peformign such evaluation, it is is essential to understand the underlying factors influencing demand factors.
  • adjusting for these underlying demand factors is referred to as risk adjustment.
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2
Q

Risk adjustment: uses

Briefly list what risk adjustment is useful for (5)

A
  • Budgeting
  • Measuring efficiency
  • ​Risk management
  • Measuring healthcare outcomes
  • Provider profiling
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3
Q

Risk adjustment uses: budgeting

Describe how risk adjustment may be used for budgeting (3)

A
  • Many countries distribute hospital budgets according to underlying demand of patients in districts measure by diagnosis related groups.
    • DRG are clinical classification systems used to risk-adjust hospital costs.
  • Risk-adjustment models can be used to calculate actual/true expected cost of new group of lives purchasing PMI products for pricing or reserving
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4
Q

Risk adjustment uses: measuring efficiency

Describe how risk adjustment may be used for measuring effeciency (6)

A

Adjusting for patient mix is necessary when comparing provider costs, as costs may differ due to various factors

  • eg when comparing two hospital costs…
  • ….hopsital A may be getting more cases of neurosurgery than hospital B…
  • hence, hospital B would have a higher average costs per admission

This is useful for

  • price negotiations for purchasers/suppliers of healthcare
  • network selection for insurance
  • managing facilities efficiently
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5
Q

Risk adjustment uses: risk management

Describe how risk adjustment may be used for risk management (4)

A
  • when a healthcare budget has been exceeded, it is important to determineif Supply and/or Demand factors have caused the potential excess
  • appropriate risk management strategies can then be devised to curtail cost increases.
  • for State hospitals, difficult to influence demand factors
  • in open enrolment/community rating setting, difficult to influence demand through selection

when healthcare budget is exceeded it is important to know whether this is due to demand or supply side factors. -

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6
Q

Risk adjustment uses: measuring healthcare outcomes

Describe how risk adjustment may be used for measuring healthcare outcomes (3)

A
  • measuring healthcare quality is important because value is both a function of cost efficiency and quality
  • healthcare inflation has exceeded general inflation, thus want to channel patients to cost-efficient providers.
  • risk adjustment is required for this comparison
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7
Q

Risk adjustment uses: provider profiling

Describe how risk adjustment may be used for provider profiling (3)

A
  • in order to support sustainable healthcare insurers both locally and internationally share information with doctors on their generated costs compared to their peers on a like-for-like basis (i.e. risk adjusted basis).
  • this information increases awareness amongst doctors on the economic impact of their clinical decisions.
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8
Q

Risk-adjustment approach: considerations

What should be factored in when considering the approach to take for a risk adjustment exercise? (3)

A

The approach to risk adjustment depends on the purpose of the risk adjustment exercise.

Approaches used may be:

  • simple empirical risk adjustment/statistical modelling may be applied to the risk adjust data OR
  • numerous off-the-shelf classification systems can be used for risk adjustment. data may be risk adjusted using these off-the-shelf software systems
    • software packages typically require demographic info and clinical diagnosis
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9
Q

Risk factors: intro

What do we mean by a ‘risk adjustment factor’? (1)

What needs to be considered when deciding on the risk adjustment factors to use in a risk adjustment exercise

List the ‘categories’ according to which risk factors may be classified (5)

A

Risk adjustment factors are factors which can be applied to healthcare data when we want to perform a risk adjustment exercise

Cosiderations for risk adjustment factors

  • The purpose of the risk adjustment excercise; pricing, contracting with new healthcare provider
  • insured peril; eg if it is related to mortality, morbidity or retrenchment
  • time frame under consideration; eg during acute in-hospital admission, next month or year?
  • population being considered; eg in-hospital, paediatric patients, etc

Risk adjustment factors fall into the followign major categories

  • demographic factors
  • clinical factors
  • health-related behaviours
  • socio-economic factor
  • -attitudes and perceptions
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10
Q

Risk adjustment factors: examples

List some examples of risk adjustment factors

demographic factors (3)

clinical factors (5)

health-related behaviours (5)

socio-economic factor (4)

attitudes and perceptions (3)

A

Demographic factors

  1. age
  2. gender/sex
  3. race

Clinical factors

  1. principal diagnosis
  2. severity of principal diagnosis
  3. mental health
  4. physical functional status
  5. acute physiological stability

Health related factors

  1. tobacco use
  2. alcohol use
  3. sexual practices
  4. diet and nutrition
  5. obesity

Socio economic factors

  1. educational attainment
  2. housing characteristics
  3. health insurance coverage
  4. cultural beliefs

Attitudes and perceptions

  1. overall health status
  2. religious behaviours
  3. references and expectations for health care services
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11
Q

Risk adjustment factor: age

In what way does this risk adjustment factor influence utuilisation, effectiveness and/or cost of healthcare given? (2)

A
  • ability of human body to recover from illnesses reduces with age
  • older patients have worse clinical outcomes
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12
Q

Risk adjustment factor: gender

In what way does this risk adjustment factor influence utuilisation, effectiveness and/or cost of healthcare given? (4)

A
  • ertain clinical conditions are sex specific
    • male - prostate cancer
    • femaile - breast cancer
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13
Q

Risk factor: race

In what way does this risk adjustment factor influence utuilisation, effectiveness and/or cost of healthcare given? (2)

A
  • well-documented differences exist in disease prevalence by race
  • once adjusted for socio-economic factors, disparities in healthcare between different enthic groups are greatly reduced, but still not elimininated.
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14
Q

Risk adjustment factor: acute clinical stability

In what way does this risk adjustment factor influence utuilisation, effectiveness and/or cost of healthcare given? (3)

A
  • this relates to measures of a person’s physiological functioning using homeostatic measures:
    • eg. heart rate, body temperature, blood pressure
  • these measures of acute clinical stability are needed to check if a given patient is facing imminent risk of death, and will thus influence the chance that healthcare provided will help in the intended way
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15
Q

Risk adjustment factor: principal diagnosis

In what way does this risk adjustment factor influence utuilisation, effectiveness and/or cost of healthcare given? (3)

A
  • it is often necessary to understand the extent and severity of a principal diagnosis
    • eg type of bacterial or viral infection for a patient diagnosed with gastritis
  • this can play a role on the utuilisation, effectiveness and/or cost of healthcare given
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16
Q

Risk adjustment factor: co-morbidities

Briefly discuss what we mean by ‘co-morbidity’ and how this impacts and why we’d want to use this is a risk adjustment factor? (2)

A
  • co-morbidity refers to a clinical condition which exists simultaneously with another condition, usually independently of another medical condition
    • eg diabetes and a heart condition
  • presence of co-morbidities will influence utuilisation, effectiveness and/or cost of healthcare given
17
Q

Risk adjustment factor: functional status

What does ‘functional status’ refer to?

A
  • often refers to observable basic activities of daily living (ADL) and instrumental ADLs
  • ADL egs:
    • feeding
    • washing
    • toileting
  • instrumental ADLs egs:
    • shopping
    • cooking
  • functional status has a bearing on effectiveness and/or cost of healthcare given​
18
Q

Risk adjustment factor: socio-economic status

In what way does this risk adjustment factor influence utuilisation, effectiveness and/or cost of healthcare given? (3)

A
  • studies have shown that it is important to adjust for socio-economic factors when comparing healthcare outcomes.
  • poor living standard and nutrition contribute to morbidity risk.
  • doctors may keep patients with lower socio-economic status in hospitals longer if they believe home conditions are not conducive for recuperation.
19
Q

Risk adjust factors: lifestyle factors

In what way does this risk adjustment factor influence utuilisation, effectiveness and/or cost of healthcare given? (3)

A
  • many lifestyle factors influence morbidity eg
    • alcohol use,
    • smoking,
    • use of illicit drugs.
  • these can be closely linked with chronic conditions
20
Q

Risk adjustment factor: access to benefits/insurance option

In what way does this risk adjustment factor influence utuilisation, effectiveness and/or cost of healthcare given?

A
  • access to benefit /insurance option is a critical factor in understanding the change in healthcare costs from one time period to the next.
  • it may seem healthcare costs are decreasing over time but it means policyholders just chose cheaper insurance options with less comprehensive cover.
21
Q

Calculations: DRG cost weight

What do we mean by a DRG cost weight? (4)

A
  • A cost/case weight of a Diagnosis Related Group (DRG) is a multiplicative factor of how much more expensive or cheap that DRG is relative to overall average cost of hospital admission in same period
  • E.g. DRG H has cost weight of 1.21 => 21% more expensive than the average case cost.
22
Q

Calculations: case mix index and formula

What do we mean by the Case Mix Index?

A
  • Case Mix Index= Sum of Admission Case Weights/Count of Admissions
  • E.g. Case Mix Index of 1.1 => average cost per admission is 10% higher than average cost of admissions used to set weights
  • Can calculate Case Mix as: Theoretical Cost of each DRG x No. of Admissions / Total Admissions
    • Comparing gives the average cost per admission between hospitals
    • Can then divide average cost by Case Mix Index to get risk-adjusted cost per admission
  • Outliers can distort case weights. Can want to adjust, censor or truncate
23
Q

Calculations: general approach

Describe the general approach for risk adjustment

A

Estimate Case Weights:

  • for groups with combinations of risk factors, split measure in question by combination of risk factors to get risk cells, then calculate relativity of each risk cell to overall measure.
  • case weight is: Cost Per Claimant/Average Cost per Claimant

Calculating Risk Adjustment Factors/Case Mix

  • (a) Split exposure measure by same risk factors as population segment
  • (b) Multiply each exposure measure by corresponding case weight. (c) then sum across risk cells
  • (d) Divide total exposure measure to determine a risk adjustment factor.
  • (e) Compare case mix adjusted average cost per claimant to population average