Risk Factor Tables

We explained the PIP-DCG model in detail in our January 15, 1999, Advance Notice of Methodological Changes for the CY 2000 Medicare+Choice Payment Rates. Further detail on the model is available in HCFA's March 1, 1999, Report to Congress: Proposed Method of Incorporating Health Status Risk Adjustors into Medicare+Choice Payments.

In its basic form, the PIP-DCG model is an algorithm that uses base year inpatient diagnoses, along with demographic factors, to predict total health spending in the following year. In applying the PIP-DCG model to risk adjust payments for the Medicare+Choice program, however, the model will be used to determine relative risk factors. To derive the relative risk factors, predicted expenditure estimates from the model are divided by the mean predicted expenditures for FFS beneficiaries, which is $5,100 for the calibration year. Because the predicted expenditures are used in the form of relative ratios, applied to the rate book, payments are not sensitive to the year of the expenditure data used in the calibration. These relative risk factors will be used, in place of the current demographic factors, to adjust county rate book amounts for the relative health status of the individual enrollee.

The PIP-DCG model was developed to be "additive," meaning that incremental factors are added based on beneficiary characteristics. The table below shows the risk factors applicable to classes of beneficiaries under the risk adjustment system. (This table differs from the table in our January 15, 1999, notice, only in showing the values as factors, rather than as dollar coefficients as we did in the previous table. We did this in order to render the table easier to read and to use, since it is no longer necessary to divide the values by the $5,100 mean predicted FFS expenditures, which is the denominator for all the ratios.) Referring to the table below, the following examples illustrate how the PIP-DCG model will be used for estimating relative risk factors. (These examples duplicate those used in the January 15, 1999, notice, in order to show how the coefficients employed in the table there translate into the factors used in this table.) Individuals whose risk factors are equal to 1.00 are "average."

Examples: In this example, Beneficiary A was hospitalized twice during the base year. The diagnoses reported were Asthma (PIP-DCG 8) and Staphylococcus Pneumonia (PIP-DCG 18). The highest PIP-DCG category then for this beneficiary is PIP-DCG 18, which carries with it a factor of 2.656. The beneficiary is also placed in the appropriate demographic group. In this case, Beneficiary A is male, aged 82. This age group carries an incremental factor of 1.077. In addition, Beneficiary A had originally been Medicare eligible because of a disability (which carries an incremental factor of 0.287), but is not eligible for Medicaid (no increment). Adding together these incremental factors, the risk factor for this beneficiary is 4.02 (indicating a high expected cost individual).

Beneficiary B had no inpatient admissions during the base year. Therefore, no specific PIP-DCG increment is added; expenditures for non-hospitalized beneficiaries are included in the demographic factors. Beneficiary B is placed in the appropriate age and sex grouping; in this case, female, aged 69, which carries an incremental factor of 0.453. Beneficiary B is also placed in the Aged with Medicaid eligibility group, which adds an incremental factor of 0.433. Since she has never been disabled, no additional factors are added. Therefore, the final factor for this beneficiary is 0.89 (indicating a relatively low expected cost individual).

The risk factors for new enrollees would be determined in the same manner, though separate age/sex and Medicaid factors derived for these beneficiaries are used. (See the section on Demographic-only factors for new enrollees in the January 15, 1999, notice.)

Assignment of risk factors: After Medicare+Choice organizations submit inpatient hospital encounter data for the payment year, we will use the demographic information and diagnostic information from all Medicare+Choice organizations a beneficiary may have joined and from FFS to determine the appropriate risk factor for each beneficiary. It is at this point that information regarding beneficiary Medicaid eligibility (in any single month during the diagnosis data collection year), original reason for Medicare entitlement (originally disabled) for any one month, identification as a new enrollee, beneficiary age, sex and working-aged status (beneficiary covered under a employer insurance) are determined using Medicare administrative data files, and are used along with inpatient diagnostic data to assign the appropriate risk factor.

When a Medicare+Choice organization forwards beneficiary enrollment information to HCFA, we, in turn, will send the organization the appropriate risk factor for the beneficiary, as well as the resultant payment. Because the risk factor is computed for each individual beneficiary for a given year, the factor follows that beneficiary. In addition, since all beneficiaries will have risk factors, information will be immediately available for payment purposes as beneficiaries move among Medicare+Choice organizations.

Factors for People with One or More Years Experience

PIP SCORES for People with One or More Years Experience

Factors for New Enrollees