Rong Yi , Senior Research Associate, DxCG Inc. Academy Health Conference June 6, 2004

1. Better Provider Profiling: Adding Patient Risk Adjustment to Episodes Rong Yi, Senior Research Associate, DxCG Inc. Academy Health Conference June 6, 2004

2. Questions Keeping Us Up at Night: The credibility of a provider profiling initiative depends largely on how well we can respond to the ‘my patients are sicker” objection. • How much do patient comorbidities affect episode costs? • Could we use the DCG Relative Risk Score that measures patient risk along with Medstat’s Episode Group method to more accurately determine expected costs? • How do severity and risk-adjusted episodes change our provider profiling results?

3. Presentation Outline • Project objectives • Proposed methodology • Application to BCBS of South Carolina’s provider profiles • Conclusions

4. MEGsMedstat’s Episodes Grouper Look-back Episode Clean Period Lab Office Visit Prescription Hospital Admission Office Visit Office Visit • Links together a patient’s claims into a clinically meaningful episode across care settings • Calculates summary episode cost and utilization metrics • Assigns a managing physician to the episode to support profiling • Determines the disease stage of the episode (highest)

5. DCG Model DxCG’s DCG/HCC Models Clinical Categories Diagnosis Information Age/Sex Patient Risk Scores • Developed using regression methods on Medstat’s MarketScan database (commercial model) • Model input includes demographic information and all diagnosis information (and/or drug information) for a patient for a period (typically a year) • Assigns a set of risk scores to the patient that measures current and future risk (used for adjustment in profiling and predictive modeling).

6. DCG – Calculating a Patient’s Risk Score 0.45 54 year old male Condition Categories 5.71 Diabetes with renal manifestation 1.84 Congestive heart failure 0.90 Acute myocardial infarction 0.89 Vascular disease with complication 0 Vascular disease hierarchy 18.09 Dialysis status … …… 0.46 Diabetes & congestive heart failure interaction ______ 29.34 Relative Risk Score Member ID: 00001Name: John SmithAge: 54 Sex: MRel Risk Score: 29.34

7. How Much Should an Episode Cost?- Depends on the patient!

8. Cost of Pneumonia and Patient Risk (DCGs) DCG Risk Score Healthier..……………… Sicker

9. Cost of Chronic Diabetes Patient Risk (DCGs) DCG Risk Score Healthier..……………… Sicker

10. Overall Relationship between Episode Disease Stage and Patient Illness Burden Stages are not comparable across MEGs, but broadly higher stages go with higher risk scores.

11. Risk-Adjusted Episodes in Provider Profiling Problem: While episodes can be severity-adjusted, without adjusting for patient risk, there is the potential to unfairly reward physicians who care for patients with few co-morbid diseases and penalize those who effectively care for patients with significant disease burden. Proposed solution: Marry the patient-level risk scores from DxCG with the severity score within Medstat’s Episodes Grouper to fairly evaluate physicians and pay for the best performance. Medstat’s Episodes Grouper Severity-adjustment within Episode DxCG’s HCC Model Whole-patient Relative Risk Score Risk-adjusted Episodes

12. Developing the Risk-Adjusted Episode Model • MarketScan database • Only complete episodes with enough time for claim run-out • 20 million episodes in 2002 • Regression models incorporating • MEG • Disease Stage • DCG/HCC Prospective Relative Risk Score • Predict episode cost within each MEG

13. Improvements in Predictive Power (R2)

14. Overview of BCBS of South Carolina’s Profiling Efforts • 1+ million enrolled members • Provider Contracting deals with over 1600 physicians • Profiling effort began in 1998, using the MEGs. • Profile specialists with more than 100 members on episode cost and use information and compare to specialist norms

15. Risk-Adjusted Episode Profile for Internal Medicine / General Practice

16. Performance Ratios by Physician • Performance ratios for most physicians (the ratio of actual $ / expected $) are similar between the two methods. • Some physicians performance ratio changes significantly when we add patient risk to the adjustment. Adjusted using episode group and stage Adjusted using episode group, stage and patient risk Physician H moved from an outlier to practicing within expected range Physician D is even more of an outlier

17. Physician D – Drill Down This physician’s patients have consistently lower illness burden than expected.

18. Physician H Drill Down Physician H moves from an outlier to within the norm due to treating more severely ill patients.

19. Conclusions • Episode costs increase with the severity of the disease (MEG) and disease burden of the patient (RRS) • Considerable variation in episode costs leaves room for risk adjustment • Organizations can improve the accuracy of provider performance assessments using risk-adjusted episodes. This is important for ensuring equitable pay-for-performance. • Plans are underway to incorporate risk-adjusted episodes into the Medstat’s standalone episode grouper and Advantage Suite.