Medicare Will Phase in Risk-Adjusted HMO Payments Over 5-Year Period

WASHINGTON—Medicare will phase in a new payment method for managed care groups, known as risk adjustment, over the first 5 years of the new century. The payment plan, required under the Balanced Budget Act of 1997, is intended to encourage managed care organizations to enroll the sickest Medicare beneficiaries.

The Health Care Financing Administration (HCFA) said that risk adjustment looks at a patient’s diagnosis in 1 year and predicts how much additional cost there will be in the following year. HCFA said risk adjustment will increase payments to plans that care for the sickest beneficiaries.