A Standardized Relative Resource Cost Model for Medical Care: Application to Cancer Control Programs

Medicare data represent 75% of aged and permanently disabled Medicare beneficiaries enrolled in the fee-for-service (FFS) indemnity option, but the data omit 25% of beneficiaries enrolled in Medicare Advantage health maintenance organizations (HMOs). Little research has examined how longitudinal patterns of utilization differ between HMOs and FFS. The Burden of Cancer Study developed and implemented an algorithm to assign standardized relative costs to HMO and Medicare FFS data consistently across time and place. Medicare uses 15 payment systems to reimburse FFS providers for covered services. The standardized relative resource cost algorithm (SRRCA) adapts these various payment systems to utilization data. We describe the rationale for modifications to the Medicare payment systems and discuss the implications of these modifications. We applied the SRRCA to data from four HMO sites and the linked Surveillance, Epidemiology, and End Results–Medicare data. Some modifications to Medicare payment systems were required, because data elements needed to categorize utilization were missing from both data sources. For example, data were not available to create episodes for home health services received, so we assigned costs per visit based on visit type (nurse, therapist, and aide). For inpatient utilization, we modified Medicare’s payment algorithm by changing it from a flat payment per diagnosis-related group to daily rates for diagnosis-related groups to differentiate shorter versus longer stays. The SRRCA can be used in multiple managed care plans and across multiple FFS delivery systems within the United States to create consistent relative cost data for economic analyses. Prior to international use of the SRRCA, data need to be standardized.