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Information on past-year drug use improves the accuracy of Medicare Part D prescription drug payments to health plans

Research Activities, July 2009, No. 347

Medicare offers an outpatient prescription drug plan under Part D of the program. It pays private health plans a prospective payment for each Part D beneficiary, which is adjusted for the individual's disease burden. Incorporating information on the person's prior year drug use and costs can improve the accuracy of payments to Part D plans, concludes a new study. A research team evaluated the performance of multiple approaches to predict 2006 Part D drug costs and plan liability for 139,462 beneficiaries participating in the Medicare Advantage drug program in 2005 and 2006. Accurate risk adjustment allows for plans to be paid fairly, while at the same time discouraging them from selecting patients with better health risk profiles. Currently, the Part D risk-adjustment score only takes into consideration patient diagnostic and demographic information.

The current approach explained 12 percent of the variation in all Part D costs in 2006 and 19 percent of Part D plan liability. Approaches that included prior year drug use, including types of drugs used in a particular therapeutic class, explained 29 percent of the variation in Part D costs. Including drug cost information further improved prediction, increasing the percentage of variation explained to 39 percent. The study was supported in part by the Agency for Healthcare Research and Quality (HS13902). See "Distributing $800 billion: An early assessment of Medicare part D risk adjustment," by John Hsu, M.D., M.B.A., M.S.C.E., Jie Huang, Ph.D., Vicki Fung, Ph.D., and others, in the January/February 2009 Health Affairs 28(1), pp. 215-225.

Current as of July 2009
Internet Citation: Information on past-year drug use improves the accuracy of Medicare Part D prescription drug payments to health plans: Research Activities, July 2009, No. 347. July 2009. Agency for Healthcare Research and Quality, Rockville, MD. http://archive.ahrq.gov/news/newsletters/research-activities/jul09/0709RA43.html