Incorporating machine learning and social determinants of health indicators into prospective risk adjustment for health plan payments

Background: Risk adjustment models are employed to prevent adverse selection, anticipate budgetary reserve needs, and offer care management services to high-risk individuals. We aimed to address two unknowns about risk adjustment: whether machine learning (ML) and inclusion of social determinants of health (SDH) indicators improve prospective risk adjustment for health plan payments. Methods: We employed a 2-by-2 factorial design comparing: (i) linear regression versus ML (gradient boosting) and (ii) demographics and diagnostic codes alone, versus additional ZIP code-level SDH indicators. Healthcare claims from privately-insured US adults (2016–2017), and Census data were used for analysis. Data from 1.02 million adults were used for derivation, and data from 0.26 million to assess performance. Model performance was measured using coefficient of determination (R2), discrimination (C-statistic), and mean absolute error (MAE) for the overall population, and predictive ratio and net compensation for vulnerable subgroups. We provide 95% confidence intervals (CI) around each performance measure. Results: Linear regression without SDH indicators achieved moderate determination (R2 0.327, 95% CI: 0.300, 0.353), error ($6992; 95% CI: $6889, $7094), and discrimination (C-statistic 0.703; 95% CI: 0.701, 0.705). ML without SDH indicators improved all metrics (R2 0.388; 95% CI: 0.357, 0.420; error $6637; 95% CI: $6539, $6735; C-statistic 0.717; 95% CI: 0.715, 0.718), reducing misestimation of cost by $3.5 M per 10,000 members. Among people living in areas with high poverty, high wealth inequality, or high prevalence of uninsured, SDH indicators reduced underestimation of cost, improving the predictive ratio by 3% (~$200/person/year). Conclusions: ML improved risk adjustment models and the incorporation of SDH indicators reduced underpayment in several vulnerable populations.