Comparison of diagnosis-based risk adjustment methods for episode-based costs to apply in efficiency measurement

Abstract

Abstract Background The recent rising health spending intrigued efficiency and cost-based performance measures. However, mortality risk adjustment methods are still under consideration in cost estimation, though methods specific to cost estimate have been developed. Therefore, we aimed to compare the performance of diagnosis-based risk adjustment methods based on the episode-based cost to utilize in efficiency measurement. Methods We used the Health Insurance Review and Assessment Service–National Patient Sample as the data source. A separate linear regression model was constructed within each major diagnostic category (MDC). Individual models included explanatory (demographics, insurance type, institutional type, diagnosis-based risk adjustment methods) and response variables (episode-based costs). The following risk adjustment methods were used: Refined Diagnosis Related Group (RDRG), Charlson Comorbidity Index (CCI), National Health Insurance Service Hierarchical Condition Categories (NHIS-HCC), and Department of Health and Human Service-HCC (HHS-HCC). The model accuracy was compared using R-squared (R2), mean absolute error, and predictive ratio. For external validity, we used the 2017 dataset. Results The model including RDRG improved mean R2 from 34.2–38.5% compared to the adjacent DRG. RDRG was inferior to both HCCs (RDRG, 38.5%; NHIS-HCC, 40.6%; HHS-HCC, 41.4%) and superior to CCI. Model performance varied depending on the MDC groups. While both HCCs had the highest explanatory power in 11 MDCs, including MDC P (Newborns), RDRG showed the highest adjusted R2 in 6 MDCs, such as MDC O (pregnancy, childbirth, and puerperium). The average mean absolute errors were the lowest in the model with RDRG ($1,241). The predictive ratios showed similar patterns among models regardless of subgroups according to age, sex, insurance type, institutional type, and upper and lower 10th percentiles of actual costs. External validity also showed a similar pattern in the model performance. Conclusions Both NHIS-HCC and HHS-HCC were useful in adjusting comorbidities, excluding complications, for episode-based costs in the process of efficiency measurement.