Under this phase two grant, researchers at the University of Washington, working with the Washington State Health Care Authority, designed and implemented a diagnostic risk adjusted payment system based on diagnostic and demographic models developed during phase one. This demonstration project had six specific goals: 1) to examine the stability and precision of the risk assessment model; 2) to develop options to address key policy issues that arise; 3) to generate a fair and feasible risk adjusted payment system; 4) to simulate risk adjusted plan payments and evaluate the results; 5) to communicate with stakeholders; and 6) to implement risk adjusted payment.