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Health-Based Risk Adjustment: Improving the Pharmacy-Based Cost Group Model by Adding Diagnostic Cost Groups

Since 1991, risk-adjusted premium subsidies have existed in the Dutch social health insurance sector, which covered about two-thirds of the population until 2006. In 2002, pharmacy-based cost groups (PCGs) were included in the demographic risk adjustment model, which improved the goodness-of-fit, as measured by the R2, to 11.5%. The model's R2 reached 22.8% in 2004, when inpatient diagnostic information was added in the form of diagnostic cost groups (DCGs). PCGs and DCGs appear to be complementary in their ability to predict future costs. PCGs particularly improve the R2 for outpatient expenses, whereas DCGs improve the R2 for inpatient expenses. In 2006, this system of risk-adjusted premium subsidies was extended to cover the entire population.