A mixture model approach to updating payment weights with an application to ICD-10 implementation

Case mix reimbursement and performance measurement are widely implemented in health care systems internationally. In this paper, we review the recent Canadian experience with payment distortions in cost weights that have resulted from adoption of new diagnostic and intervention classification systems. We describe a general mixture model approach which, in the absence of cost data, can mitigate errors in cost weights that result from shifts in the distribution of patients across resource groups.