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The Risk Adjustment Conundrum

Published May 16, 2016 8:12 AM by Monique Barrett

[Editor's note: This blog was originally written by Kathy Mosbaugh, vice president, clinical solutions, LexisNexis Risk Solutions.]

Managing the health risks of member populations proactively is and should be a top priority for all at-risk organizations. Their ability to do so effectively is largely determined by the analytics underpinning and the accuracy of their risk adjustment and stratification models. What innovative risk stratification teams and data scientists are also discovering is that the data sources feeding those analytics are almost as important, if not more so, than the analytics themselves.

Healthcare organizations may be unaware that standard risk adjustment and stratification models are not a one-size-fits-all models. Depending on their goals and objectives, they may find that most standard models provide limited insight. The addition of data from non-traditional sources, plus sophisticated analytics that extract predictive intelligence from the data, can substantially improve the accuracy, effectiveness and value of their risk adjustment and stratification initiatives, and in turn, their efforts to improve health outcomes and reduce costs.

Standard risk adjustment models, like the CMS-HCC Risk Adjustment Model, are primarily used for financial purposes, like health plan reimbursement. These models seek to calculate the expected future average cost of a patient population based primarily on historical claims data and limited demographics. Models based solely on chronic condition or high cost methodologies, for example, fail to account for a wide range of specific drivers of future risks, making them insufficient, on their own, to provide reliable and accurate intelligence for population management decisions.

Fortunately, the solution is contained in a single, simple tactical adjustment--implementing the use of traditional risk adjustment models in combination with advanced predictive analytics. The fusion and analysis of financial, socioeconomic and other non-medical data with clinical-based data enables transparency and insight into the health risks of individuals and populations, now and in the future. The true power of predictive analytics is derived from the synergistic effect created by the combination of multiple data types culled from various sources.

A key alternative source of information that deserves emphasis is socioeconomic data, such as those sourced from public records. When viewed from various angles, public records often contain hidden bits of information that can be pieced together to reveal strong indicators of potential health risks, which are undetectable through standard risk adjustment techniques. For example, credit score dips and bankruptcy filings may indicate a loss of employment or other socioeconomic struggles, which can lead to depression, substance abuse or other mental health issues. Divorces, income drops and certain types of address changes are all strong indicators of major life changes, which can also be predictors of future risk.

The point is that real events in peoples' lives can have a significant impact on their mental and physical health. More information about individuals' lives provides more clarity about their health and better opportunities to prevent or fill gaps in their health care. And the predictive power derived from this information source can significantly increase the accuracy with which populations are stratified and lined up for care and disease management programs.


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chris rizos December 12, 2018 4:30 AM


george friedman, d - hya, d November 8, 2018 11:49 PM
usa DC

good article

jhon andrson September 13, 2018 9:38 AM

good job!

Mira, good July 24, 2018 2:55 AM
los angeles CA

While more and more sophisticated modeling of risk is possible, the real problem with health care provider insurance risk assumption is that risk assuming health care providers become small, inefficient health insurers, for the populations they serve.

The mathematics of insurance - actuarial risk theory - is quite clear in this regard. Large insurers manage risk very efficiently. Small insurers manage risk very poorly.

What this means is that when both a large insurer, say 100 times larger than a small insurer, select portfolios at random from the same population, the loss ratio for the large insurer will fall in an interval around the expected that is 1/10th as wide as the interval for the small insurer.

That decreased interval width means that the large insurer is highly unlikely to earn excessive profits, or incur excessive losses. But the small insurer is highly likely to incur either excessive profits, or excessive losses.

In health care settings, this phenomenon explains why so many insurance risk assuming health care providers have failed financially over the last 3 decades. While so generate undeserved profits, others sustain catastrophic losses every year. Large insurers, managed care organizations and health care corporations need only sit on the sidelines every year, waiting for the financial failures to occur.

As a nurse and former insurance professional I have written and presented on the flaws in capitation, bundled and episode based payments, and profit/risk sharing agreements, most notably in "Standard Errors: Our Failing Health Care (Finance) Systems And How To Fix Them".

Every year some insurance risk assuming health care providers become takeover targets through no fault of their own, while others earn undeserved profits and become exemplars of good planning and management. Sadly, these roles, and their reversal, are often not the result of better/worse planning and implementation, but the simple expression of the trials and tribulations of the insurance game.

While risk adjustment can moderate the impact of inefficient insurance operations, the risk adjustments necessary to make disaggregation of insurance risks work are so great that no third-party payer would ever be willing to make such an adjustment. You simply cannot sustainably compensate health care providers for the insurance risks they assume.

Thomas Cox November 30, 2016 12:06 PM
Gainesville FL

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