Medicare should perform risk adjustment of payments to hospitals and insurers based on socioeconomic considerations or the overall health of populations rather than on the medical conditions of patients, according to a new study.

Analysts at the Dartmouth Atlas Project compared the current methodology, which adjusts risk, and therefore payments, based on the underlying medical condition of Medicare patients, to several other risk adjustment methodologies and found that socioeconomic considerations – that is, the poverty of the region in which patients live – and the overall health of regional populations is a better approach to payment risk adjustment.

Risk adjustment is used to determine how the federal government pays Medicare Advantage plans and how it penalizes hospitals for what are considered “excessive” Medicare readmissions.

The National Association of Urban Hospitals (NAUH) has long called for Medicare to risk-adjust its hospital readmissions reduction program based on socioeconomic factors and has, in the wake of several studies that question the program’s fairness, endorsed legislation to require such risk adjustment.

Learn more about the new study in the article “A population health approach to reducing observational intensity bias in health risk adjustment:  cross sectional analysis of insurance claims,” which has been published in the journal BMJ.  Find the article here.