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

The inclusion of ill-defined diagnoses may increase predictive accuracy but will likely reduce accuracy in implementation. In general, as more diagnoses are included in a payment system, a greater volume of diagnoses needs to be reported and audited, and a higher proportion of variation in level of need observed among plans would result from differences in plans' abilities to make and report diagnoses rather than from actual differences in their enrollees. It seems likely that the inclusion of ill-defined diagnoses would particularly make the payment system more vulnerable to aggressive plan efforts to increase reporting. The modest improvement in accuracy on a given data set that is gained through ill-defined diagnoses seems far less important than having a system that is more easily administered and probably more accurate in practice.

We believe that the exclusion from CDPS of ill-defined conditions is a virtue, and we encourage others to consider this issue more carefully. Our work is far from sufficient to settle the question of which diagnoses are well defined and which are not. For each diagnosis that our data indicated was predictive of elevated costs, our approach was to ask specialists directly how well defined they thought the diagnosis was. We did not ask about the many diagnoses that failed to show any association with elevated future cost. A much more intensive approach might involve asking clinicians to make diagnoses from sample medical records and regarding diagnoses as ill-defined where the clinicians' test diagnoses show weak agreement. It might be important to include both specialist and primary physicians because some diagnoses might be well defined for the specialist but not the generalist.

Excluding Low-Cost Diagnoses

A related question is whether groups of diagnoses with high frequency and very low-cost implications should be included in a payment system. For example, bladder and urethral infections were diagnosed for 95,000, or 10 percent, of our sample of adults with disability and more than 185,000, or 12 percent, of AFDC adults. Estimated additional monthly costs in the next year associated with this diagnosis were only $12 for adults with disability and $11 for AFDC adults. A respiratory tract condition such as sinusitis, pharyngitis, acute bronchitis, or cough was diagnosed for 1.5 million, or 42 percent, of the AFDC children in the sample and for 33 percent of AFDC adults. Estimated additional monthly costs in the next year were 88 for the AFDC children and $13 for the AFDC adults.

These additional amounts are very small in comparison with the additional amounts in the range of $200-800 for the more costly diagnostic groups. The cost effects of less than $830 are also small relative to the average monthly expenditures for people with disability in our sample of 8416. For AFDC beneficiaries, however, these small cost effects are more significant because average AFDC adult expenditures are $158 per month, and average expenditures for AFDC children are $57 per month.