Exhibit 3.
Comparison of Risk Adjustment Approaches: Part D Drug Expenditures and Plan Liability in 2006
| Outcome: Part D Drug Expenditures in 2006 | |||
|---|---|---|---|
| Category | Risk adjustment method | Mean Absolute Prediction Error (MAPE) in $ |
% of Variation Explained (Adj R2) |
| 1. Demographics | Age + Gender | 684 | 0.24% |
| 2. Part D risk adjuster | RxHCC (summary score) | 571 | 12.08% |
| 3. Part C risk adjuster | CMS-HCC (summary score) | 609 | 9.55% |
| HCC (184 indicators) | 568 | 17.24% | |
| 4. Drug use | RxGroup (155 indicators) | 459 | 28.92% |
| 5. Drug expenditures | Cost 2005 | 425 | 39.03% |
| Cost 2005 + Cost2 | 392 | 42.41% | |
| 6. RxHCC + Drug information | RxHCC + RxGroup | 451 | 29.64% |
| RxHCC + Cost 2005 | 394 | 41.19% | |
| RxHCC + Cost 2005+Cost2 | 392 | 43.49% | |
| Outcome: Plan Liability in 2006 | |||
| Category | Risk adjustment method | Mean Absolute Prediction Error (MAPE) in $ |
% of Variation Explained (Adj R2) |
| 1. Demographics | Age + Gender | 357 | 0.45% |
| 2. Part D risk adjuster | RxHCC (summary score) | 302 | 19.09% |
| 3. Part C risk adjuster | CMS-HCC (summary score) | 321 | 14.02% |
| HCC (184 indicators) | 299 | 22.36% | |
| 4. Drug use | RxGroup (155 indicators) | 249 | 37.89% |
| 5. Drug expenditures | Cost 2005 | 270 | 33.13% |
| Cost 2005 + Cost2 | 243 | 42.05% | |
| 6. RxHCC+ Drug information | RxHCC+RxGroup | 245 | 39.10% |
| RxHCC + Cost 2005 | 248 | 39.84% | |
| RxHCC + Cost 2005+Cost2 | 230 | 45.67% | |
Source: Authors' analysis
This exhibit displays the performance of six categories of risk adjustment approaches in predicting actual 2006 Part D prescription drug expenditures and plan liability using a linear regression model. The table displays the performance with respect to each outcome. RxHCC refers to the current CMS Part D risk adjustment score, which CMS calculates at three points in time in 2006; this table reports results using the final RxHCC score of the year. CMS-HCC refers to the CMS risk adjustment score for MA/M+C plans, which is based on outpatient and inpatient diagnoses. HCC refers to the indicators from the CMS-HCC risk adjustment scoring approach, which also uses outpatient and inpatient diagnoses. RxGroup refers to indicators for drug groups based on outpatient drug data. Cost 2005 refers to all prescription drug expenditures from 2005 for drugs covered under the Part D program; Cost 20052 refers to a squared term for 2005 drug expenditures.