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Risk Modeling Prospective Payment

Objective: Prospective payment systems (PPS) require rigorous efforts to ensure that payments are calculated such that they are based on sound methodology, support health policy objectives for population health management, and promote appropriate incentives for efficiency and quality of care. The CHCMS designed this current study to use a valid risk adjustment method (Diagnostic Cost Groups (DCGs)) to identify issues associated with possible adoption of a Military Treatment Facility (MTF)-level PPS for TRICARE Prime enrollees, and to compare DCG-based MTF-level payments with payments based on age and sex only.

Results: MTFs differ markedly by the characteristics and costs of their enrollees. The fraction of the care for its own TRICARE Prime enrollees that an MTF provides ranges from 25% to 83%. The median value is 55%. The 44 smallest MTFs, containing just 2.5% of enrollees in total, have unstable mean costs. The remaining 104 MTFs, with more than 5,000 continuously enrolled over 2 years, are more plausible risk-bearing candidates. In a direct comparison between the DCG-based and Age/Sex models, the DCG-based model estimated expenditures that are 5.5% closer to actual expenditures for the 10 MTFs with the highest illness burden. The DCG-based model allocates greater dollars to teaching hospitals and to Army MTFs. Ideally, a prospective payment system’s payments to an MTF accurately reflect its expected costs. Using the DCG model, only 68 of the 104 large MTFs have expected costs within 10% of actual; with the Age/Sex model, only 62 MTFs are this closely matched. Under either model, nine facilities (six in common) have total expected costs that differ from actual by 20% or more.

Status: Complete

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