Concept Architecture
Concept
Theoretically, Concurrent Risk Adjustment is a statistical risk adjustment methodology that predicts healthcare expenditure or resource utilisation for a given period using diagnoses and other risk factors recorded during that same period. Unlike prospective risk adjustment, which predicts future costs from prior information, concurrent risk adjustment explains current-period variation in expenditure by accounting for contemporaneous morbidity. The method is widely used in health financing, provider payment and performance measurement to improve the fairness of comparisons across populations with differing health needs.
Mathematically, Concurrent Risk Adjustment is represented using multivariable regression models in which observed healthcare expenditure or utilisation is modelled as a function of demographic characteristics, diagnostic information and other recognised risk factors measured during the same observation period. The estimated coefficients quantify the contribution of each risk factor to expected expenditure and generate individual or population-level risk scores.
In practice, concurrent risk adjustment is implemented using administrative claims, diagnostic coding systems, pharmacy data and demographic information. Regression models are estimated using historical healthcare datasets, after which predicted costs or risk scores are calculated for individuals or provider populations. The resulting estimates are used in payment systems, health plan comparisons, case-mix adjustment and evaluations of healthcare efficiency.
Purpose
Used to adjust healthcare payments and performance measures for differences in patient morbidity, estimate expected healthcare expenditure, improve fairness in provider comparisons and support equitable resource allocation.
Mathematical Formulae
Primary Formula
E(Y?) = ?? + ??X?? + ??X?? + ? + ??X??
where:
- Y? = observed healthcare expenditure or utilisation for individual i
- X??X? = concurrent demographic and clinical risk factors
- ????? = estimated regression coefficients
Supporting Formulae
Risk Score? = ?? + ? ??X??
Residual:
e? = Y? ? ??
Related Mathematical Methods
- Multiple linear regression
- Generalised linear models
- Risk scoring
- Case-mix adjustment
- Ordinary least squares estimation
- Maximum likelihood estimation
Example
A concurrent risk adjustment model estimates annual healthcare expenditure using age, sex and diagnostic indicators.
Estimated model:
Expected Cost = 500 + (120 ? Diabetes) + (850 ? Heart Failure)
For a patient with diabetes and heart failure:
Expected Cost = 500 + (120 ? 1) + (850 ? 1)
= �1,470
This expected expenditure is used to adjust provider performance comparisons and payment calculations.
Excel Implementation
| Function | Example Formula | Health Economics Application |
|---|---|---|
| LINEST | =LINEST(B2:B1000,C2:F1000,TRUE,TRUE) | Estimates regression coefficients for the concurrent risk adjustment model. |
| SUMPRODUCT | =SUMPRODUCT(C2:F2,$J$2:$J$5)+$J$1 | Calculates an individual's predicted healthcare expenditure. |
| FORECAST.LINEAR | =FORECAST.LINEAR(G2,B2:B1000,C2:C1000) | Generates predicted values in simplified models. |
| RSQ | =RSQ(B2:B1000,H2:H1000) | Evaluates model fit between observed and predicted expenditure. |
VBA (Optional)
A VBA routine can automate the calculation of concurrent risk scores for all beneficiaries by applying estimated regression coefficients to updated claims data.
Sources
- Ellis RP. Risk Adjustment in Health Care Markets: Concepts and Applications.
- Pope GC, Ellis RP, Ash AS, et al. Diagnostic Cost Group Hierarchical Condition Category Models.
- van de Ven WPMM, Ellis RP. Risk Adjustment in Competitive Health Plan Markets.
- ISPOR Good Practice Reports.
- Drummond MF, Sculpher MJ, Claxton K, Stoddart GL, Torrance GW. Methods for the Economic Evaluation of Health Care Programmes.
Related Concepts (2)
Frequently Asked Questions (6)
What is concurrent risk adjustment?
A risk adjustment method using diagnoses observed in the same period costs are predicted for, unlike prospective adjustment using prior period data.
Source: Ellis 2008
Which period's diagnoses does concurrent risk adjustment use?
Concurrent risk adjustment uses diagnoses observed in the same period for which costs are being predicted, rather than relying on data from an earlier period. Because it draws on what is happening now, it can capture sudden changes in a person's health that prospective adjustment, based on prior-period data, would miss. This makes it well suited to explaining costs already incurred, though less useful for setting payments in advance, since the data are not yet available when a period begins. Same-period diagnoses to predict same-period cost is what it uses. Ellis (2008) sets out this method.
Source: Ellis 2008
How does concurrent risk adjustment work?
Concurrent risk adjustment works by using diagnoses observed in the same period as the costs being predicted, so the diagnoses and costs come from the same timeframe rather than the diagnoses preceding the costs. So concurrent risk adjustment works with same-period data, which is why it differs from prospective, since it uses concurrent rather than prior diagnoses, and concurrent risk adjustment predicts costs using diagnoses from the same period, aligning the diagnoses with the costs they are used to explain.
Source: Ellis 2008
How does concurrent risk adjustment differ from prospective risk adjustment?
Concurrent risk adjustment differs from prospective risk adjustment in the timing of the diagnoses: concurrent adjustment uses diagnoses from the same period as the costs, while prospective adjustment uses diagnoses from a prior period to predict later costs. So concurrent and prospective adjustment differ in data timing, which is why they are distinguished, since one uses same-period and the other prior-period diagnoses, and concurrent risk adjustment uses current-period diagnoses whereas prospective risk adjustment uses earlier diagnoses to predict future costs.
Source: Ellis 2008
Why is concurrent risk adjustment used?
Concurrent risk adjustment is used to explain costs using diagnoses from the same period, which can give a closer fit to actual costs in that period than prospective adjustment, useful for purposes such as retrospective assessment. So concurrent risk adjustment is used for same-period explanation, which is why it fits current costs well, since the diagnoses match the period of the costs, and concurrent risk adjustment is used to account for costs with same-period diagnoses, often giving a better fit to those costs than prospective adjustment based on prior data.
Source: Ellis 2008
When is concurrent risk adjustment appropriate?
Concurrent risk adjustment is appropriate when the aim is to explain or account for costs within a period using diagnoses from that same period, such as retrospective analysis, rather than to predict future costs from prior data as prospective adjustment does. So concurrent adjustment suits same-period accounting, which is why it is chosen there, since it aligns diagnoses with the costs' period, and concurrent risk adjustment is appropriate for explaining current-period costs with current-period diagnoses, whereas prospective adjustment suits predicting future costs from prior-period data.
Source: Ellis 2008
Trust Record
Verified by Dr Darrin Baines
British health economist
Professional identity: darrinbaines.org
Verification date: 12 Jan 2026
Content version: 1.0.0
Canonical Identity
- Term code
- HS-HP-HI-044
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