Medicare pays "at-risk" health maintenance organizations a prospective capitation amount that is established by the adjusted
average per capita cost (AAPCC) formula for estimating the amount enrollees would have cost had they remained in the fee-for-service
sector. Because the AAPCC accounts for a very small percentage of the variation in beneficiary costs, considerable research
has been devoted to improving the formula. A way to improve the explained variance is to remove the most expensive beneficiaries
from the AAPCC payment system and pay for them separately. This article examines one approach to a payment system that combines
the AAPCC with an outlier payment mechanism.
Capitation Fee/statistics & numerical data : Health Maintenance Organizations/economics : Insurance Pools/economics : Medicare/economics/organization
& administration : Outliers, DRG/economics : Prospective Payment System/economics : Rate Setting and Review : Risk : United