The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Risk Adjustment

  • Randall P. Ellis
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2942

Abstract

Risk adjustment is used in settings with uncertainty to make payments or allow comparisons of outcomes while controlling for exogenous risk factors that explain variations in the outcome of interest, such as spending, utilisation, quality or death. This article focuses on the conceptual and empirical uses of risk adjustment in health economics, where patient-level risk factors are commonly used to explain spending and other outcomes.

Keywords

Adverse selection Biased selection Health economics Health insurance Health outcomes Life insurance Life tables 
This is a preview of subscription content, log in to check access

Bibliography

  1. American Academy of Actuaries. 2010. Issue brief: Risk assessment and risk adjustment. May 2010. http://www.actuary.org/pdf/health/Risk_Adjustment_Issue_Brief_Final_5-26-10.pdf. Accessed 7 Feb 2012.
  2. Ash, A.S., F. Porell, L. Gruenberg, et al. 1989. Adjusting medicare capitation payments using prior hospitalization data. Health Care Financing Review 10(4): 17–29.Google Scholar
  3. Ash, A.S., R.P. Ellis, G.C. Pope, J.Z. Ayanian, D.W. Bates, H. Burstin, L.I. Iezzoni, E. McKay, and W. Yu. 2000. Using diagnoses to describe populations and predict costs. Health Care Financing Review 21(3): 7–28.Google Scholar
  4. Averill, R.F., N.I. Goldfield, J. Eisenhandler, J.S. Hughes, B.V. Shafir, and D.E. Gannon, et al. 1999. Development and evaluation of clinical risk groups (CRGs), 3M health information systems. Wallingford.Google Scholar
  5. Basu, A., W.G. Manning, and J. Mullahy. 2004. Comparing alternative models: Log vs. Cox proportional hazard. Health Economics 13: 749–765.CrossRefGoogle Scholar
  6. Berlinguet, M., C. Preyra, and S. Dean. 2005. Comparing the value of three main diagnosis based risk adjustment systems (DBRAS), Canadian Health Services Research Foundation (CHSRF) report.Google Scholar
  7. Buntin, M.B., and A.M. Zaslavsky. 2004. Too much ado about two-part models and transformation? Comparing methods of modeling medicare expenditures. Journal of Health Economics 23: 525–542.CrossRefGoogle Scholar
  8. Centers for Medicare and Medicaid Services (CMS). 2006. Announcement of calendar year (CY) 2007 medicare advantage capitation rates and medicare advantage and part D payment policies. http://www.cms.hhs.gov/MedicareAdvtgSpecRateStats/Downloads/Announcement2007.pdf. Accessed 23 Aug 2006.
  9. Constantinides, G. 1978. Market risk adjustment in project evaluation. Journal of Finance 33: 603–616.CrossRefGoogle Scholar
  10. Dixon, P., M. Dushieko, H. Gravelle, S. Martin, and N. Rice, et al. 2011. Developing a person-based resource allocation formula for allocations to general practices in England. Nuffield Trust. http://www.nuffieldtrust.org.uk/sites/files/nuffield/document/Developing_a_person-based_resource_allocation_formula_REPORT.pdf. Accessed 15 July 2011.
  11. Duan, N., W. Manning, C.N. Morris, et al. 1983. A comparison of alternative models for the demand for medical care. Journal of Business & Economic Statistics 1: 115–126.Google Scholar
  12. Duncan, I. 2011. Healthcare risk adjustment and predictive modeling. Winsted: Actex Publications.Google Scholar
  13. Eggleston, K.N., R.P. Ellis, and M. Lu. (forthcoming). Risk adjustment and prevention. Canadian Journal of Economics.Google Scholar
  14. Eichner, M.J. 1998. The demand for medical care: What people pay does matter. The American Economic Review. Papers and Proceedings 88(2): 117–21.Google Scholar
  15. Ellis, R.P. 2008. Risk adjustment in health care markets: Concepts and applications. In Paying for health care: New ideas for a changing society, ed. M. Lu and E. Jonnson. Weinheim: Wiley-VCH.Google Scholar
  16. Ellis, R.P., and T.G. McGuire. 2007. Predictability and predictiveness in health care spending. Journal of Health Economics 26: 25–48.CrossRefGoogle Scholar
  17. Ellis, R.P., G.C. Pope, L.I. Iezzoni, J.Z. Ayanian, D.W. Bates, H. Burstin, and A.S. Ash. 1996. Diagnosis-based risk adjustment for medicare capitation payments. Health Care Financing Review 12: 101–128.Google Scholar
  18. Fetter, R.B., Y. Shin, J.L. Freeman, R.F. Averill, and J.D. Thompson. 1980. Case mix definition by diagnosis-related groups. Medical Care 18(2), Supplement: Case mix definition by diagnosis-related groups. pp. i + iii + v + ix + 1–53. Stable URL: http://www.jstor.org/stable/3764138
  19. Florida Agency for Health Care Administration. 2009. Risk adjustment model comparison. http://ahca.myflorida.com/Medicaid/quality_management/workgroups/managed_care/5_rar_model_comparison_050709.pdf. Accessed 17 Oct 2011.
  20. Glazer, J., and T.G. McGuire. 2000. Optimal risk adjustment of health insurance premiums: An application to managed care. American Economics Review 90(4): 1055–1071.CrossRefGoogle Scholar
  21. Glazer, J., and T.G. McGuire. 2002. Setting health plan premiums to ensure efficient quality in health care: Minimum variance optimal risk adjustment. Journal of Public Economics 84(2): 53–173.CrossRefGoogle Scholar
  22. Gründl, H., T. Post, and R.N. Schulze. 2006. To hedge or not to hedge: Managing demographic risk in life insurance companies. The Journal of Risk and Insurance 73(1): 19–41.CrossRefGoogle Scholar
  23. Iezzoni, L.I. (ed.). 2003. Risk adjustment for measuring healthcare outcomes, 3rd ed. Ann Arbor: Health Administration Press.Google Scholar
  24. Ingber, M. 1998. The current state of risk adjustment technology for capitation. Journal of Ambulatory Care Management 21: 1–28.CrossRefGoogle Scholar
  25. Jack, W. 2006. Optimal risk adjustment in a model with adverse selection and spatial competition. Journal of Health Economics 25: 908–926.CrossRefGoogle Scholar
  26. Kronick, R., and T. Dreyfus. 1997. The challenge of risk adjustment for people with disabilities: Health-based payment for medicaid programs. Princeton: Center for Health Care Strategies.Google Scholar
  27. Kronick, R.T., T. Dreyfus, and Z. Zhou. 1996. Diagnostic risk adjustment for Medicaid: The disability payment system. Health Care Financing Review 17: 7–33.Google Scholar
  28. Manning, W.G., and J. Mullahy. 2001. Estimating log models: To transform or not to transform? Journal of Health Economics 20: 461–494.CrossRefGoogle Scholar
  29. Manning, W.G., A. Basu, and J. Mullahy. 2005. Generalized modeling approaches to risk adjustment of skewed outcomes data. Journal of Health Economics 24: 465–488.CrossRefGoogle Scholar
  30. Newhouse, J.P. 2002. Pricing the priceless: A health care conundrum. Cambridge, MA: MIT Press.Google Scholar
  31. Newhouse, J.P., et al. 1989. Adjusting capitation rates using objective health measures and prior utilization. Health Care Financing Review 10(3): 41–54.Google Scholar
  32. Pope, G.C., K.W. Adamache, R.K. Khandker, and E.G. Walsh. 1998. Evaluating alternative risk adjusters for medicare. Health Care Financing Review 20: 109–129.Google Scholar
  33. Pope, G.C., J. Kautter, R.P. Ellis, A.S. Ash, J.Z. Ayanian, L.I. Iezzoni, M.J. Ingber, J.M. Levy, and J. Robst. 2004. Risk adjustment of medicare capitation payments using the CMS-HCC model. Health Care Financing Review 25(4): 119–141.Google Scholar
  34. Rice, N., and P. Smith. 2001. Capitation and risk adjustment in health care financing: An international progress report. Milbank Quarterly 79: 81–113.CrossRefGoogle Scholar
  35. Robst, J., J.M. Levy, and M.J. Ingber. 2007. Diagnosis-based risk adjustment for medicare prescription drug plan payments. Health Care Financing Review 28(4): 15–30.Google Scholar
  36. Shen, Y., and R.P. Ellis. 2002. Cost minimizing risk adjustment. Journal of Health Economics 21: 515–530.CrossRefGoogle Scholar
  37. Symmetry Health Data Systems, Inc. 2001. Episode risk groups: ERG user’s guide. Phoenix: Symmetry Health Data Systems, Inc.Google Scholar
  38. Thomas, J.W., K.L. Grazier, and K. Ward. 2004. Comparing accuracy of risk adjustment methodologies used in economic profiling of physicians. Inquiry 41: 218–231.CrossRefGoogle Scholar
  39. van de Ven, W.P.M.M., and R.P. Ellis. 2000. Risk adjustment in competitive health plan markets. In Handbook of health Eeonomics, ed. A.J. Culyer and J.P. Newhouse. North-Holland: Amsterdam. Available at http://www.sciencedirect.com/science/article/pii/S1574006400801730. Accessed 1 Aug 2011.
  40. van de Ven, W.P.M.M., K. Beck, F. Buchner, D. Chernichovsky, and L. Gardiol, et al. 2003. Risk adjustment and risk selection on the sickness fund insurance market in five European countries. Health Policy 65: 75–98. Available at http://www.econ.kuleuven.be/public.economics/papers/riadinsu.pdf. Accessed 15 July 2011.
  41. van de Ven, W.P.M.M., R.C.J.A. van Vliet, and L.M. Lamers. 2004. Health-adjusted premium subsidies in the Netherlands. Health Affairs 23: 45–54.CrossRefGoogle Scholar
  42. Von Korff, M., E.H. Wagner, and K. Saunders. 1992. A chronic disease score from automated pharmacy data. Journal of Clinical Epidemiology 45: 197–203.CrossRefGoogle Scholar
  43. Wasem, J., L.M. Lauterbach, and W.F. Schrader. 2006. Klassifikationsmodelle für Versicherte im morbiditätsorientierten Risikostrukturausgleich. (Classification models for risk adjustment in the morbidity-oriented risk structure reconciliation.) Wissenschaftliches Institut der AOK (WIdO). Available at http://wido.de/fileadmin/wido/downloads/pdf_ggw/wido_ggw_aufs1_0205.pdf. Accessed 17 Oct 2011.
  44. Weiner, J.P., B.H. Starfield, D.M. Steinwachs, and L.M. Mumford. 1991. Development and application of a population-oriented measure of ambulatory care case mix. Medical Care 29: 453–472.CrossRefGoogle Scholar
  45. Winkelman, R., and S. Mehmud. 2007. A comparative analysis of claims-based tools for health risk assessment. Schaumburg: Society of Actuaries.Google Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Randall P. Ellis
    • 1
  1. 1.