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A Risk Adjustment System for the

Medicare Capitated ESRD Program

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Jesse LevyJohn Robst

Melvin Ingber

Office of Research, Development, and Information

Centers for Medicare & Medicaid ServicesBaltimore, MD

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Background

• Medicare is the principal payer for medical services for those with End-Stage Renal Disease.

• The Medicare ESRD program has grown rapidly since 1972, increasing from 7,000 enrollees to over 300,000.

• The ESRD program now accounts for 9% of Medicare expenditures though serving less than 1% of Medicare beneficiaries.

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• A small portion is enrolled in Medicare Advantage (MA) plans and ESRD demonstration plans.

• MA program payment adjustments for ESRD reflect only beneficiary demographics

• The demographic adjustment system cannot differentiate more costly from less costly patients within each of the broad payment cells.

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• Capitation payments better correlated with patient costs than current payments are needed.

• This paper describes the risk adjustment system developed to meet this need.

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The CMS ESRD risk adjustment system is based on the CMS-HCC model. The ESRD population divided into three groups by treatment modality. 1. Dialysis - Model estimated; CMS-HCC

specification2. Transplant

- 3 months total Medicare expenditures- kidney-only and kidney-pancreas

3. Functioning graft - CMS HCC Model plus payment for immunosuppressives

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Data• 1999/2000 Medicare data• 100% fee-for-service ESRD beneficiaries• ESRD status of the beneficiary is determined

concurrently – a person is switched to the appropriate part of the ESRD payment system upon the occurrence of a triggering event

• Medicare costs (annualized) in 2000 • Diagnoses from inpatient, outpatient, and

physician claims in 1999• Risk adjustable, new enrollees, MSP

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Dialysis

• Average annualized expenditures: $59,003• R-square: .0767• Selected coefficients:

Female, age 45 39,492CHF 4440Diabetes 5628Vascular disease w/ complications 7747COPD 3839

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Transplant

KidneyKidney +

onlyPancreas

Month 1 33424 50136Month 2 4523 6785Month 3 4523 6785

Total 42470 63705

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Functioning Graft

• Average annualized expenditures: $20,092• R-square: .2745• Additional payment:

Age lt 65_Duration4-9 15,853

Age ge 65_Duration4-9 17,569

Age lt 65_Duration10+ 8,310

Age ge 65_Duration10+ 8,671

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Predictive RatiosAge-sex Risk

Dialysis 1.04 1.00

Transplant 0.549 1.00

Functioning graft 2.846 1.00

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Example: 2004, Female, age 45, San Diego

COPD, CHF, Vascular Disease, Diabetes

Risk $ Dem $

Dialysis $6,861 $4,345

Transplant $57,223 $13,035

Functioning $2,869 $4,345

Graft (3 yrs)>3 years $2,869 $504

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Conclusion

• Overall, the system has been designed to meet the needs of legislation, to minimize extra data collection, and to improve accuracy of payment so that both demonstrations and MA plans can succeed in improving care for this population. If successful, perhaps the restrictions on ESRD enrollment in the general capitated program can be removed.