Adjusting Risk Adjustment — Accounting for Variation in Diagnostic Intensity

Abstract

In the U.S. health care system, payments and performance measures are often adjusted to account for differences in patients’ baseline health and demographic characteristics. The idea behind such risk adjustments is to create a level playing field, so that providers aren’t penalized for serving sicker or harder-to-treat patients and insurers aren’t penalized for covering them. For example, the private insurance companies that participate in Medicare Advantage and the Affordable Care Act (ACA) exchanges receive risk-adjusted payments from the U.S. government, with the rationale that insurers should be reimbursed more for enrollees with higher expected costs.