Risk-adjusted capitation payments: Developing a diagnostic cost groups classification for the Dutch situation

In many countries market-oriented health care reforms are high on the political agenda. A common element of these reforms is that the consumers may choose among competing health insurers or health plans, which are largely financed through premium-replacing capitation payments. Since 1993, Dutch sickness funds receive risk-adjusted capitation payments based on demographic factors. It has been shown that the predictive accuracy of a demographic capitation model improves when it is extended with diagnostic information from prior hospitalizations, in the form of Diagnostic Costs Groups (DCGs). In this study a DCG classification is developed using Dutch cost data of sickness fund members of all ages. The study also dealt with the question of how to handle high discretion diagnoses. For the Dutch situation high discretion diagnoses may be defined as those diagnoses for which day case treatment is a possible alternative for a hospital admission. Grouping persons with a hospital admission for high discretion diagnoses together with people without an admission resulted in a slight reduction of the predictive accuracy of the DCG model. Adequate risk-adjustment is critical to the success of market-oriented health care reforms. The use of diagnostic information from prior hospitalizations seems a promising option for improving the capitation formula. (C) 1998 Elsevier Science Ireland Ltd. All rights reserved.