Predicting expenditures for Medicare beneficiaries with diabetes. A prospective cohort study from 1994 to 1996.

OBJECTIVE: To describe health care expenditures and utilization patterns among older adults with diabetes and to examine factors associated with expenditures over a 3-year period. RESEARCH DESIGN AND METHODS: We conducted a prospective cohort study of health care expenditures and utilization by diabetic patients from a random nationwide sample of aged Medicare beneficiaries from 1994 to 1996. All services covered by the Medicare program were examined. Multivariate regression was used to assess the contribution of patient characteristics in 1994 on Part B, inpatient, and total expenditures in 1995 and 1996. RESULTS: Per capita expenditures for beneficiaries with diabetes (n = 169,613) were 1.7 times greater than those for those beneficiaries without diabetes (n = 968,832) in 1994. This ratio remained fairly constant over the 2 years of follow-up. Expenditures for beneficiaries with diabetes were highly skewed. However, few of these individuals remained in the highest expenditure quintile over the 2 years of follow-up. Using multiple regression analysis to adjust for demographic and clinical characteristics, we were able to explain 7% of the variation in total expenditures in 1995 and 6% of the variation in 1996. Using the same model, we were able to explain 10.7% of the variation in Part B expenditures in 1995 and 8% in 1996. CONCLUSIONS: Beneficiaries with diabetes are consistently more expensive than beneficiaries without diabetes. Demographic and clinical factors at baseline are able to predict only a small portion of future expenditures among this population, and the most expensive patients in one year were often not the most expensive in subsequent years. More work is necessary to assure equitable risk adjustment in the calculation of capitation rates for health plans and practitioners who specialize in the care of individuals with diabetes.

Methods of reducing the financial risk of physicians under capitation.

In today's rapidly changing medical marketplace, managed care plans are not the only entities assuming risk for the care of enrollees through capitation. Increasingly, managed care plans are transferring this risk to their primary care and specialty physicians by paying them on a fully or partially capitated basis. Although capitation provides a strong incentive for physicians to provide cost-effective care, there are concerns that capitation may place some physicians at considerable financial risk. Our purpose is to familiarize physicians with issues they will want to consider when they evaluate capitation options and methods that are available to reduce their financial risk. Specifically, we analyze 3 issues: the range of services that are capitated, who accepts the risk, and size of patient panel. We conclude with a discussion of 3 methods for reducing or limiting risk--reinsurance, "carve outs," and risk adjustment.

The costs of children with sickle cell anemia: preparing for managed care.

PURPOSE: To anticipate the clinical challenges and financial risks facing physicians and managed care organizations who care for children with chronic illnesses, such as sickle cell anemia (SCA), under capitated managed care arrangements. PATIENTS AND METHODS: A cross-sectional study based on claims data from the Washington State Medicaid Program (WSMP) and the Federal Employees Health Benefits Program (FEP). Expenditure patterns were compared for children 18 years of age or younger for whom a claim with a diagnosis of SCA was submitted and paid in the State of Washington during fiscal year 1993 (FY1993) or by the FEP during FY1992 to expenditure patterns for all children. RESULTS: Children with SCA had mean expenditures 8.8 times the mean expenditures for all children in WSMP. There was wide variation in the annual expenditures among children with SCA; the most expensive 10% of children accounted for 56% of total expenditures. Ninety-seven percent of the expenditures were concentrated in four broad categories: 72% for inpatient care, 11% for outpatient care, 11% for physician payments, and 3% for prescription drugs. Examination of expenditure and utilization patterns for children with sickle cell anemia enrolled in the FEP yielded similar results. CONCLUSIONS: Unless managed care organizations and capitated pediatricians receive payment rates that reflect the higher expected expenditures of caring for these children, access to and quality of care may suffer. Analyses of practice guidelines and utilization patterns suggest that newborn screening, regular access to specialty facilities, and comprehensive education programs are critical areas that are vulnerable to reductions under capitation.

Capitation, managed care, and chronic obstructive pulmonary disease.

Expenditure and utilization patterns of aged Medicare beneficiaries with chronic obstructive respiratory disease (COPD) (n = 42,472) were compared with all Medicare beneficiaries (n = 1,221,615) using a 5% nationally representative sample of aged Medicare beneficiaries participating in the fee-for-service program in 1992. Per capita expenditures for an aged Medicare beneficiary with COPD were 2.4 times the per capita expenditures for all Medicare beneficiaries. The most expensive 10% of Medicare beneficiaries with COPD accounted for nearly half of total expenditures for this population. Higher comorbidity, as measured by the Deyo-adapted Charlson index, was associated with higher expenditures. For Medicare Part B claims, internal medicine accounted for the largest portion of physician expenditures (14%). Per capita expenditures for pulmonologists were 7.5 times higher for beneficiaries with COPD compared with all Medicare beneficiaries. Results from this study suggest that there is a subgroup of individuals with COPD who are likely to be very expensive during the year. Additional analytic studies are needed to more specifically identify characteristics associated with these individuals. As more Medicare beneficiaries enroll in managed care and as physicians are increasingly being paid on a capitated basis this information will be useful to physicians as they monitor the care provided to patients and assess the financial risks they accept under capitation.

Alzheimer's disease under managed care: implications from Medicare utilization and expenditure patterns.

BACKGROUND: Little information is available about the costs, utilization patterns, and the delivery system used by Medicare beneficiaries with chronic illnesses. This information will become increasingly important as more Medicare beneficiaries with chronic illness enroll in managed care plans and delivery systems must be developed to meet their needs. OBJECTIVES: To analyze health care expenditures and utilization patterns for Medicare beneficiaries with dementia of the Alzheimer type (DAT) and compare them with those of all Medicare beneficiaries. DESIGN: A cross-sectional study. SETTING: Practices providing services to Medicare beneficiaries in the U.S. SUBJECTS: Aged Medicare beneficiaries with DAT in fiscal year (FY) 1992. MEASUREMENTS: Medical expenditures and utilization patterns. RESULTS: In FY 1992, per capita Medicare expenditures for 9323 patients with DAT were $6208, or 1.9 times the per capita expenditure for all 1,221,615 beneficiaries in our sample. Inpatient care accounted for 62.7% of expenditures. Internal medicine was the specialty identified with the largest proportion of expenditures, but no single specialty accounted for the majority of care. Payments increased with comorbid conditions such as heart failure, chronic pulmonary diseases, and cerebrovascular disease. CONCLUSION: Current Medicare capitation payments to managed care plans may not meet the higher expected annual costs of care for beneficiaries with DAT. In turn, physicians (or physician groups) who accept capitation for Medicare beneficiaries with DAT should also consider how capitation rates are established by managed care plans and should learn ways to reduce financial risk.

Patterns of expenditures and use of services among older adults with diabetes. Implications for the transition to capitated managed care.

OBJECTIVE: To examine health care use and expenditures among older adults with diabetes, investigate factors that are associated with higher expenditures, and describe the policy implications of caring for this population under managed care. RESEARCH DESIGN AND METHODS: A cross-sectional analysis of expenditures for individuals with diabetes over age 65 years from a nationwide 5% random sample of Medicare beneficiaries was conducted during 1992. All components of medical care covered under Medicare were examined. Multivariate analysis was used to assess the contribution of age, race, sex, number of diabetic complications, and comorbidity (Charlson Index) on total expenditures. RESULTS: On average, individuals with diabetes (n = 188,470) were 1.5 times (P < 0.0001) as expensive as all Medicare beneficiaries (n = 1,371,960). However, there were wide variations, with the most expensive 10% of beneficiaries with diabetes accounting for 56% of expenditures for individuals with diabetes and the least expensive 50% accounting for 4%. Acute care hospitalizations accounted for the majority (60%) of total expenditures, whereas outpatient and physician services accounted for 7 and 33%, respectively. There were no differences in the number of complications for all older adults with diabetes compared with those with the highest expenditures. However, the average number of hospitalizations was 1.6 times (0.53 vs. 0.34; P < 0.0001) higher, and the average length of stay was 2 days longer, among older adults with diabetes (P < 0.0001). In the regression model, age and male sex (factors currently used to set payment rates for Medicare managed care enrollees), and number of diabetic complications, but not race, were positively related to expenditures, yet had minimal predictive power (R2 = 0.0006). The addition of the Charlson Index, also positively related to expenditures, was able to explain up to 20% of the variation in total expenditures (R2 = 0.196). CONCLUSIONS: There are large variations in expenditures among older adults with diabetes. Because elderly beneficiaries with diabetes are more expensive than the average older adult, current Medicare capitation rates may be inadequate. To avoid selection bias and under-treatment of this vulnerable population under managed care, methods to construct fair payment rates and safeguard quality of care are desirable.