Academic managed care organizations and adverse selection under Medicaid managed care in Tennessee

Context Health plans competing in a managed care system may face serious fi nancial consequences if they are disproportionately selected by enrollees w ith expensive health conditions. Academic medical centers (AMCs) have tradi tionally provided medical care for the sickest patients and may be at parti cularly high risk for adverse selection, but whether this occurs is not kno wn. Objective To determine whether managed care organizations (MCOs) representi ng AMCs are adversely selected by Medicaid managed care (MMC) enrollees wit h expensive chronic health conditions. Design and Setting Observational study using state Medicaid claims data fro m all of 1994 and January to August 1995 for Tennessee's statewide MMC prog ram (TennCare). Participants All 12 capitated MCOs in Tennessee, which collectively provide d services for 1.2 million Medicaid enrollees from January 1994 through Aug ust 1995 following the initiation of TennCare. Main Outcome Measures Prevalence of 6 state-specified high-cost chronic con ditions-acquired immunodeficiency syndrome (AIDS), coagulation defects, cys tic fibrosis, pregnancy, prematurity, and organ transplantation-and 27 addi tional high-cost conditions compared by academic, statewide, and regional M COs, Results The prevalence of state-specified high-cost chronic conditions was generally higher for academic MCOs compared with other MCOs, Specifically, prevalence of AIDS was 14.1 times higher in academic MCOs than in statewide MCOs; coagulation defects, 6.4 times higher; transplantations, 4.4; pregna ncy, 3.3; cystic fibrosis, 2.4; and prevalence of prematurity was equivalen t. Prevalence was higher for academic than for statewide MCOs for 22 of the additional 27 high-cost conditions considered and similar for the remainin g 5 conditions, Conclusions Our results suggest that academic MCOs in an MMC system are sel ected by a large percentage of the sickest patients. Adverse selection may present serious financial risks for AMCs participating in managed care.