MEDICARE NEWS

Risk Adjusted Payments to Pay More For Some Disease Management

The Health Care Financing Administration today announced that it will make extra payments to Medicare+Choice organizations that reflect the additional costs of managing the treatment of patients outside the hospital who have congestive heart failure.

This improvement is an interim step before comprehensive risk adjustment is fully implemented in 2004. It recognizes the management and treatment of congestive heart failure under the risk adjustment payment methodology required by the Balanced Budget Act of 1997. While congestive heart failure is a prevalent chronic disease and is the leading cause of hospitalization among people covered by Medicare, it cannot be cured, but it can be managed effectively in an outpatient setting.

Risk adjustment is a payment formula that allows Medicare to pay Medicare+Choice organizations more accurately for treating sicker beneficiaries. The transition period for implementation of comprehensive risk adjustment began on January 1, 2000 and it will be fully implemented in 2004.

"We know that many Medicare+Choice organizations are now managing congestive heart failure through disease management programs that may reduce the length and number of hospitalizations," said HCFA Administrator Nancy-Ann DeParle. "Medicare will begin to reward those organizations that commit their resources to treat patients outside the hospital who have congestive heart failure, while demonstrating improvement in patients’ quality of care."

As one of the most frequently billed inpatient diagnoses, congestive heart failure is unique in the degree to which it can be successfully managed on an outpatient basis. HCFA has been working with medical directors of managed care plans as well as experts in congestive heart failure, disease management and risk adjustment who suggested ways to recognize congestive heart failure in an outpatient setting, identify quality disease management programs and reimburse plans for outpatient management of the disease. In addition, outpatient management of patients with congestive heart failure is a national quality improvement topic for Medicare+Choice plans in 2001.

Risk adjustment relies on the collection of inpatient hospital encounter data that is used to make sure that Medicare+Choice plans are paid more accurately for the costs associated with an enrollee’s health status. HCFA will begin collecting physician and hospital outpatient encounter data from Medicare+Choice organizations beginning in October, 2000 and January, 2001 respectively.

Payment for outpatient care for patients with congestive heart failure will begin in 2002 for plans that succeed in providing high quality care, as measured by certain quality indicators. HCFA is continuing to work with the outside experts to identify clinical quality indicators to demonstrate that health plan efforts to promote cost effective alternatives to hospitalization are successfully being applied. These clinical quality indicators are likely to be similar to those that Medicare+Choice organizations would use for their national quality assessment performance improvement projects in 2001. The quality indicators will be announced later this year.

Under this approach, only those managed care organizations that meet objective measures will receive the additional risk adjusted payments," said Dr. Robert A. Berenson, director of HCFA’s Center for Health Plans and Providers. "This promotes one of the primary goals of risk adjustment – to reward health plans that invest in and gain reputations for the quality of their care for common chronic health conditions."

Under the Balanced Budget Refinement Act of 1999, the transition to risk adjustment in 2001 will be based on a blend percentage consisting of 10 percent risk adjusted payment and 90 percent based on the adjustment for demographic factors. In 2002, that blend percentage will be 20 percent risk adjusted and 80 percent demographic.

As of May 1, over 6.2 million of the more than 39 million Medicare beneficiaries have chosen to enroll in managed care plans. Since Medicare began offering a managed care option to its beneficiaries in 1985, a formula set by law has determined the rates paid to managed care companies. It began by determining the average monthly cost of treating Medicare patients through the traditional fee-for-service program and paid HMOs 95 percent of the cost. This method was used until 1997, when the BBA was enacted. The BBA changed the formula for paying plans and mandated that HCFA begin risk adjusting plan payments.

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Last Updated May 15, 2000