Association of Depression and Anxiety With Medicare Costs Unaccounted for by Risk-Based Payment

OBJECTIVE: The authors aimed to assess whether depression and anxiety are associated with Medicare costs that are unaccounted for by risk adjustment and to estimate the implications of this lack of accounting for risk-based payment. METHODS: This 2022-2023 national cohort study of community-dwelling Medicare beneficiaries used data from the Chronic Conditions Data Warehouse (CCW) to evaluate the association of diagnosed depression or anxiety with beneficiaries' risk-adjusted, unaccounted-for 2023 cost predictions and to compare differences in actual-to-predicted costs among beneficiaries with and beneficiaries without these disorders. CCW-based algorithms identified beneficiaries in 2022 with depression with no anxiety, anxiety with no depression, both depression and anxiety, or neither condition. Medicare's risk adjustment model was used to predict beneficiaries' 2023 costs from 2022 medical claims. RESULTS: Among 22,078,394 beneficiaries, 5.8%, 7.4%, and 5.7% had depression without anxiety, anxiety without depression, and both conditions, respectively. Mean 2023 costs were $17,907, $15,100, and $22,414 for beneficiaries with depression, anxiety, and both conditions, respectively, versus $10,902 for beneficiaries without these conditions (p<0.001). Depression was associated with 10.3%-17.7%, anxiety with 9.9%-15.2%, and both conditions with 26.3%-46.2% unaccounted-for costs. On average, the risk model underpredicted costs by $1,567 (95% CI=$1,525-$1,609), $1,159 (95% CI=$1,125-$1,193), and $3,569 (95% CI=$3,522-$3,616) per beneficiary with depression, anxiety, or both conditions, respectively. CONCLUSIONS: Medicare's risk-based payment model underpredicts costs for beneficiaries with depression or anxiety, potentially creating incentives to avoid providing care or coverage. To ensure appropriate reimbursement, Medicare should adequately adjust risk for depression and anxiety.