Measuring Patient Case Mix in Medicare

How does Medicare measure patient case mix?  For the most part, Medicare uses the Hierarchical Condition Category (HCC) model.  A recent CMS presentation describes the HCC model in more detail.  Today I review where CMS applies the HCC model, provide an overview of the HCC methodology, briefly describe its performance, and give some background on how the HCC model was developed.

Applications

Medicare uses the HCC model to risk adjust spending in the following applications:

• Medicare Advantage Capitation Payment (Implemented in 2004, fully phased-in 2007)
• Shared Savings Program Accountable Care Organizations (To be implemented in 2012)
• Medicare Physician Quality and Resource Use Reports (Implemented in 2009)
• Hospital Quality Measurement for the Medicare Spending per Beneficiary (MSPB) measure. –(Implemented in 2012).

HCC Methodology

CMS-HCC model classifies all conditions but not all conditions used in payment/other applications. Most disease groups are high cost medical condition (cancer, heart disease, hip fracture). Conditions can be excluded because they do not predict future cost (e.g., appendicitis) or there is a High degree of discretion or variability in diagnosis, diagnostic coding, or treatment (e.g., symptoms, osteoarthritis). These conditions are generated from diagnosis codes on claims. Diagnosis codes from lab, radiology and home health claims are not used because they are not reliable and may indicate rule-out diagnoses. The number of times a diagnosis is recorded does not affect the model’s assignment of beneficiaries to health states.

The HCC algorithm starts with over 14,000 ICD-9-CM codes which are grouped into 805 diagnostic groups and then aggregated to 189 condition categories (CCs). From the CC’s, CMS creates 70 hierarchical condition categories where hierarchies imposed. For instance, Angina pectoris/ old myocardial infarction is not included in the acute myocardial infarction HCC (#81) but the CC for AMI is included.

The HCC model also includes demographic factors:

• 24 age-sex cells (e.g., male age 80-84);
• Medicaid dual eligible status;
• current disability status,
• original Medicare entitlement status

There are three separate HCC models used for the Medicare Advantage program: community, institutional, and new enrollee.

The HCC model is also used to adjust payments for beneficiaries with end-stage renal disease (ESRD), all of whom are enrolled in Medicare FFS. There are three HCC models for the ESRD population: dialysis, transplant, and functioning graft.

Physician QRUR uses age-disabled, community, new enrollee and ESRD models.

HVBP uses a single model with indicators for whether the beneficiary has ESRD or is in long term care

Performance

The model can only moderately predict cost. The R-squared is about 12%. This should not be surprising as variation in health care cost over time can be highly variable.

Development and Maintenance

The model originally developed under contract to CMS by researchers at Boston University and Research Triangle Institute (RTI) with clinical input from Harvard Medical School physicians and is currently maintained by RTI.  The model is updated every year to incorporate new diagnosis codes and is recalibrated regularly on more recent diagnosis and expenditure data.