Improving Health-Based Payment for Medicaid Beneficiaries: CDPS - Chronic Illness and Disability Payment System

Health Care Financing Review, Spring, 2000 by Richard Kronick, Todd Gilmer, Tony Dreyfus, Lora Lee

INTRODUCTION

In previous work, we argued that health-based payment for Medicaid beneficiaries with disabilities is both important and feasible (Kronick, Zhou, and Dreyfus, 1995; Kronick et al., 1996). Among people with disabilities, health expenditures are strongly related to recent diagnoses, and health plans are well aware that attracting too many people with costly problems can lead to large financial losses. If a State Medicaid program does not pay more to health plans whose members have above-average levels of need, it will penalize plans attractive to people with greater needs and jeopardize quality of care. The greater predictability of expenditures among people with disabilities compared with a general population both increases the importance of health-based payment and makes it easier to do well. The strong relationship between diagnoses and future expenditures allows Medicaid programs to use diagnoses to make good predictions of health care needs.

We can now report that Medicaid programs have been leaders in the implementation of health-based payment (Table 1). Using diagnoses from both ambulatory and inpatient encounters, Maryland implemented risk adjustment in May 1997, Colorado in July 1997, Oregon in June 1998, and Delaware in January 2000. Using inpatient data only, Utah implemented a limited version of health-based payment in June 1998. Utah is planning on expanding to full diagnostic risk adjustment if the encounter data supplied by health maintenance organizations (HMOs) are of sufficient quality. Minnesota implemented health-based payment in January of 2000, adjusting 5 percent of the capitation based on diagnostic case mix, with the remaining 95 percent based on traditional demographic rate cells. Michigan is using diagnostic adjustment as part of its competitive procurement process; Michigan divides a plan's bid by that plan's case mix in order to compare bids against each other on an equitable basis. New Jersey has announced its intentions to implement risk-adjusted payments in 2000 and has done substantial work in preparation for implementation. Other State Medicaid programs, including Massachusetts, New York, and Pennsylvania, are seriously evaluating health-based payment options.

Table 1
Medicaid Health-Based Payment Activity

                  Population         Date
State              Covered        Implemented

Implemented
Maryland          SSI + TANF         5/97
Colorado          SSI + TANF         7/97
Oregon               SSI             6/98
Utah                 SSI             6/98
Minnesota(1)         TANF            1/00
Delaware          SSI + TANF      (2)1/00
Michigan             SSI             6/00

Planned
New Jersey           SSI             2000
Delaware             SSI             2000
Washington           TANF            2001
Utah(3)              SSI             2001

                   Classification               Data
State                  System                  Source

Implemented
Maryland                ACGs              Prior FFS Claims
Colorado                DPS              HMO Encounter Data
Oregon                  DPS              HMO Encounter Data
Utah              Marker Diagnosis    Inpatient Only Encounters
Minnesota(1)            ACGs             HMO Encounter Data
Delaware                CDPS             HMO Encounter Data
Michigan                CDPS             HMO Encounter Data

Planned
New Jersey              DPS                   Prior FFS
Delaware                CDPS             HMO Encounter Data
Washington              CDPS             HMO Encounter Data
Utah(3)                 CDPS             HMO Encounter Data

(1) Affects 5 percent of total capitation.

(2) TANF on 7/00.

(3) Dependent upon quality of encounter data.

NOTES: SSI is Supplemental Security Income. TANF is Temporary Assistance to Needy Families. ACGs is Adjusted Clinical Groups. FFS is fee-for-service. DPS is Disability Payment System. HMO is health maintenance organization. CDPS is Chronic Illness and Disability Payment System.

SOURCE: Kronick, R., et al., San Diego, California, 2000.

Medicaid programs are much more active than private employers in implementing health-based payment, and some are ahead of the Medicare program. HCFA began phasing in risk-adjusted payments to Medicare in January 2000, using only inpatient diagnoses, while most Medicaid programs implementing health-based payment are using or planning to use diagnoses from both ambulatory and inpatient encounters.

Concerns about health care for beneficiaries with disability account for much of the impetus for Medicaid health-based payment, although some States have extended health-based payment to beneficiaries of Temporary Assistance to Needy Families (TANF) as well. As health-based payment in Medicaid is implemented more widely, we expect increased interest in its use for TANF beneficiaries. Yet relatively little information is available about the burden of disease among TANF beneficiaries, nor has much analysis been presented of the ability of diagnostic classification systems to do a good job of fairly compensating HMOs for this population (Weiner et al., 1998). In this article, we: