Diagnoses-based cost groups in the Dutch risk-equalization model: The effects of including outpatient diagnoses

Abstract Background The Dutch basic health-insurance scheme for curative care includes a risk equalization model (RE-model) to compensate competing health insurers for the predictable high costs of people in poor health. Since 2004, this RE-model includes the so-called Diagnoses-based Cost Groups (DCGs) as a risk adjuster. Until 2013, these DCGs have been mainly based on diagnoses from inpatient hospital treatment. Objectives This paper examines (1) to what extent the Dutch RE-model can be improved by extending the inpatient DCGs with diagnoses from outpatient hospital treatment and (2) how to treat outpatient diagnoses relative to their corresponding inpatient diagnoses. Method Based on individual-level administrative costs we estimate the Dutch RE-model with three different DCG modalities. Using individual-level survey information from a prior year we examine the outcomes of these modalities for different groups of people in poor health. Conclusions We find that extending DCGs with outpatient diagnoses has hardly any effect on the R -squared of the RE-model, but reduces the undercompensation for people with a chronic condition by about 8%. With respect to incentives, it may be preferable to make no distinction between corresponding inpatient and outpatient diagnoses in the DCG-classification, although this will be at the expense of the predictive accuracy of the RE-model.