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VOLUME 51 | NUMBER 6.1 | DECEMBER 2016


A Machine Learning Framework for Plan Payment Risk Adjustment

Objective: To introduce cross-validation and a nonparametric machine learning framework for plan payment risk adjustment and then assess whether they have the potential to improve risk adjustment.

Data Sources: 2011–2012 Truven MarketScan database.

Study Design: We compare the performance of multiple statistical approaches within a broad machine learning framework for estimation of risk adjustment formulas. Total annual expenditure was predicted using age, sex, geography, inpatient diagnoses, and hierarchical condition category variables. The methods included regression, penalized regression, decision trees, neural networks, and an ensemble super learner, all in concert with screening algorithms that reduce the set of variables considered. The performance of these methods was compared based on cross-validated R2.

Principal Findings: Our results indicate that a simplified risk adjustment formula selected via this nonparametric framework maintains much of the efficiency of a traditional larger formula. The ensemble approach also outperformed classical regression and all other algorithms studied.

Conclusions: The implementation of cross-validated machine learning techniques provides novel insight into risk adjustment estimation, possibly allowing for a simplified formula, thereby reducing incentives for increased coding intensity as well as the ability of insurers to “game” the system with aggressive diagnostic upcoding.

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