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Managed Care & Persons with Disabilities & Chronic Illnesses

Developing Appropriate Capitation Rates


Richard Kronick, Ph.D., Professor, Department of Family and Preventive Medicine, University of California at San Diego, and Co-lnvestigator, Medicaid Working Group, Boston, MA.

Dr. Kronick began this session by discussing ways in which moving from unadjusted capitation rates to a health-based payment system (his preferred term, rather than "risk-adjusted capitation payments") could promote positive results, such as:

  • Plan innovation.
  • Consumer choice.
  • Plans being willing to advertise, rather than hide, their success in caring for high-cost
  • conditions.

A health-based payment system can also help to avoid negative behavior by plans, such as risk avoidance.

Dr. Kronick discussed criteria for assessing alternative health-based payment systems, including:

  • Ease of implementation.
  • Resistance to gaming.
  • Incentives for efficiency.
  • Accuracy of payments.
  • Clinical coherence.

He then assessed different risk adjustment methods or factors against these criteria, including:

  • Demographic variables.
  • Health status measures.
  • Prior expenditure levels
  • Diagnoses.

Dr. Kronick concluded by describing several diagnostic classification systems, including the Disability Payment System (DPS) that he was involved in developing, and discussing the current status of the use of health-based payment systems across the States.


Kronick R, Dreyfus T, Lee L, Zhou Z. Diagnostic Risk Adjustment for Medicaid: The Disability Payment System. Health Care Financing Review 17(3): 7-33.

Kronick R, Dreyfus T. The Challenge of Risk Adjustment for People with Disabilities: Health-Based Payment for Medicaid Programs. A Guide for State Medicaid Programs, Providers and Consumers. (October 1997):i-v.

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