Health-based risk adjustment Improving the pharmacy-based cost group

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Abstract
The pharmacy-based cost group (PCG) model uses medication prescribed to individuals in a base-year as marker for chronic conditions which are employed to adjust capitation payments to their health plans in the subsequent year. Although the PCG model enhances predictive performance, possibilities for gaming may arise as it is based on prior utilization. This study investigates several strategies to mitigate this problem. The best strategies appear to be: use a (high) number of prescribed daily doses to assign persons to PCGs, do not allow for comorbidity, and remove PCGs with low future costs. This PCG model accounts for almost twice as much variance as do demographic models. In 2002 the Dutch government implemented this model in the sickness fund sector (twothirds of the population).

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