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Adverse selection at academic health centers
1Virginia Commonwealth University, Richmond, USA.
Insights
Academic health centers (AHCs) face financial distress due to market competition and adverse selection. Patients with severe illnesses are drawn to AHCs, increasing their vulnerability and network exclusion by health plans.
Area of Science:
- Health economics
- Healthcare management
- Medical economics
Background:
- Academic health centers (AHCs) are experiencing significant financial challenges.
- Market competition and selective contracting introduce price competition into healthcare.
- These factors threaten the core missions of AHCs.
Purpose of the Study:
- To discuss the issue of adverse selection impacting AHCs.
- To analyze the probability of sicker patients seeking care at AHCs.
- To understand the implications of adverse selection for AHCs' financial stability and network participation.
Main Methods:
- The manuscript presents a conceptual discussion of adverse selection in the context of AHCs.
- It analyzes the factors contributing to AHCs' vulnerability to adverse selection.
- The study examines the impact of health plan contracting strategies on AHCs.
Main Results:
- AHCs are particularly susceptible to adverse selection due to their role as referral centers, specialty focus, research capabilities, and patient demographics.
- Adverse selection increases the likelihood of AHCs being excluded from health plan networks.
- Contracting for tertiary care only exacerbates adverse selection at AHCs.
Conclusions:
- Adverse selection poses a significant financial threat to academic health centers.
- Health plans' network management strategies can further disadvantage AHCs.
- AHCs must address the challenges posed by adverse selection to ensure their financial viability and continued service provision.
Abstract:
Market influences are placing many academic health centers (AHCs) in financial distress. Competitive forces threaten the core missions of AHCs, principally because of selective contracting, which has introduced price competition to medical care. This manuscript discusses the issue of adverse selection for AHCs, the probability that patients with higher levels of illness severity seek care at, or are referred to, AHCs. AHCs are particularly vulnerable to adverse selection because of their prominence as referral centers, their specialty composition, research expertise, and the socioeconomic status of patients located proximal to their centers. The adverse selection of AHCs increases the likelihood that health plans will trim their networks to exclude them. Health plans may still contract with AHCs for tertiary care only, but this will only worsen the adverse selection at AHCs.