Your browser doesn't support JavaScript. Please upgrade to a modern browser or enable JavaScript in your existing browser.
Skip Navigation U.S. Department of Health and Human Services
Agency for Healthcare Research Quality
Archive print banner

This information is for reference purposes only. It was current when produced and may now be outdated. Archive material is no longer maintained, and some links may not work. Persons with disabilities having difficulty accessing this information should contact us at: Let us know the nature of the problem, the Web address of what you want, and your contact information.

Please go to for current information.

Children with Special Healthcare Needs

Reimbursement & Risk Adjustment


Henry Ireys, Ph.D., Director, Policy Center for Children with Special Health Care Needs, and Associate Professor, Johns Hopkins University School of Hygiene and Public Health.

John Muldoon, M.H.A., Vice President of Classification Research, National Association for Children's Hospitals and Related Institutions.

Laurie Soman, M.S.W., Senior Policy Analyst, Center for the Vulnerable Child.

This session examined the issues associated with the effectiveness of various risk-adjustment strategies in predicting annual costs for children with special health care needs (CSHCN).

Henry Ireys, Ph.D., provided the participants with a broad overview of risk-adjustment concepts and methods and the research with which he is involved. He explained risk adjustment as the attempt to distribute financial resources for medical care in a just fashion that minimizes financial problems for health plans resulting from enrolling high-cost individuals.

Dr. Ireys highlighted a range of issues, including:

  • The challenges associated with defining important operational groups for risk-adjustment purposes.
  • Various models of capitation methods (risk models).
  • Approaches for estimating accuracy of capitation methods.

Dr. Ireys also highlighted research that is exploring how well existing models of risk adjustment can predict service costs for children with chronic illnesses. These models were:

  • The Ambulatory Diagnostic Groups (ADG) model, which is based on primary and secondary diagnoses.
  • The Adjusted Clinical Groups (ACG) model, which uses groups that are derived from Ambulatory Diagnostic Groups Models and adds age and gender to the review.
  • The Hierarchical Coexisting Conditions (HCC) model, which looks at the presence of specific conditions and adds predicted costs for each condition to calculate total costs.
  • The Disability Payment System (DPS) model, which focuses on 18 categories of illness or disability and bases risk adjustment on association of these conditions with future costs.

The findings of this research indicate that the models most frequently used to assess risk adjustment, the ADG model and the ACG model, are problematic because they do not account for differences in clinical descriptors and self-reported health status. Dr. Ireys' research shows, however, that the HCC model has the best ability to predict actual costs to determine overall risk.

John Muldoon then discussed a new risk-adjustment approach developed by the National Association for Children's Hospitals and Related Institutions using a classification scheme called Clinical Risk Groups (CRGs).

There are four primary uses for the CRGs:

  • Tracking congenital/chronic disease prevalence rates.
  • Profiling health service utilization and physician practice patterns
  • Pricing and capitation risk adjustment.
  • Linking to measures of patient satisfaction/quality tracking.

The CRGs can be considered a population-based grouping mechanism with an elaborate set of clinical decision rules that classify individuals into mutually exclusive risk-adjustment categories based upon all of the information available from claims and encounter databases.

John Muldoon indicated that the testing of the CRG system has yielded encouraging results because of its ability to produce clinically recognizable information and its ability to predict the costs of medical treatment for groups of individuals in a future period of time.

Laurie Soman, Senior Policy Analyst for the Center for the Vulnerable Child, highlighted key issues that Alameda County, California, faced when approaching risk adjustment and managed care for CSHCN.

In an effort to address the needs of CSHCN, a risk-assessment tool concentrating on three domains—medical risk, family risk, and agency involvement for children with special needs—was constructed. The data collected from this identification tool thus far has shown that since the implementation of the risk-adjusted primary care capitation rates, risk adjustment has aided in preserving the safety net for CSHCN.

There has been no evidence, however, that risk adjustment attracts new pediatric providers into the Alameda County System, and as yet, there is no evidence showing that risk-adjusted rates actually reflect annual costs of care for CSHCN.


Ireys HT, Anderson GF, Shaffert TJ, Neff JM. Expenditures for Care of Children with Chronic Illnesses Enrolled in the Washington State Medicaid Program, Fiscal Year 1993. Pediatrics 1997;100(2):197-204.

National Association for Children's Hospitals and Related Institutions. Summary Description and Illustration of Clinical Risk Groups. October 25, 1999.

Previous Section Previous Section       Contents         Next Section Next Section

The information on this page is archived and provided for reference purposes only.

AHRQ Advancing Excellence in Health Care