Risk Adjustment for Medicare

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Abstract
Figure 1 of the Sounding Board article entitled “Paying More Fairly for Medicare Capitated Care,” by Iezzoni et al. (Dec. 24 issue),1 shows the ratio of predicted to actual Medicare costs for five high-cost diagnostic groups according to three methods of risk adjustment. Ratios under 1.0 indicate underestimates of future costs with use of the adjusted average per capita cost (AAPCC) and principal inpatient diagnostic cost groups (PIP-DCGs). In an earlier report2 this group provided similar information on 17 of the 86 high-risk diagnostic groups. Table 1 shows the actual and predicted average costs per person for these diagnoses in 1992 according to the AAPCC and PIP-DCG models. The difference in costs (predicted minus actual cost) is given instead of the ratio, and all 17 diagnostic groups have negative values, indicating underpayment. Although the size of the underpayment was smaller with the PIP-DCG model than with the AAPCC model, it still exceeded $1,000 on average for 14 of the 17 diagnostic groups.

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