A flawed health insurance risk adjustment program could have strange, unintended consequences, such as pushing doctors to start by using insulin to control mild diabetes rather than by recommending that patients eat better.

Officials at the Center for Consumer Information and Insurance Oversight (CCIIO), a federal agency that is helping the Center for Medicare & Medicaid Services implement and run the Patient Protection and Affordable Care Act of 2010, have included that observation in a draft white paper on risk adjustment implementation issues.

If PPACA takes effect as written and works as expected, the act will require plans to sell individual and small-group coverage on a guaranteed-issue, mostly community-rated basis starting in 2014.

PPACA also is supposed to give many individuals and small groups the ability to use new tax credit subsidies to buy health coverage through a new system of health insurance exchanges.

To protect health insurers inside and outside the exchanges against the risk of adverse selection, the U.S. Department of Health and Human Services (HHS) – the parent of CMS – is supposed to help states develop federally certified risk adjustment programs that may include reinsurance, risk corridors and risk adjustment mechanisms.

A risk adjustment program would help “mitigate adverse selection by assessing charges on plans with lower than average health risk and transferring those funds to plans with higher than average health risk,” officials write in the risk adjustment white paper draft.

Officials hope to develop a risk adjustment methodology proposal in the fall of 2012; responses to the white paper can be submitted up until the methodology draft comes out.

To create a successful risk adjustment program, officials must accurately explain cost variations within a given population, choose risk factors that are clinically meaningful to providers, encourage favorable behavior and discourage unfavorable behavior, limit gaming, provide stable risk scores and minimize administrative burden, officials say.

When developing the actual risk adjustment methodology, states must consider matters such as addressing limited claims experience, accounting for differences in plan benefit structure, and use of pharmacy data in risk adjustment, officials say.

Many employers and private-sector health plans, for example, now use pharmacy benefits use data to analyze the health of plan enrollees.

In the real world, if managers of a risk adjustment program were using pharmacy data to transfer cash from one plan to another, including prescription data in a risk adjustment model “could offer powerful incentives to steer treatment toward pharmaceutical therapy in order to identify risk of the enrolled population,” CCIIO officials say. “If prescription data is included as a source of diagnoses in risk adjustment, absent any other claims with a diabetes diagnosis code, the issuer would receive additional risk adjustment funds if the physician prescribes insulin and would not receive additional funds if the physician recommends diet and exercise.”

The CCIIO is asking about ways to use prescription data while minimizing the risk that such use could affect prescribing patterns in ways that might not help patients.

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