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

Health plans competing in a managed care system may face serious financial consequences if they are disproportionately selected by enrollees with expensive health conditions. Academic medical centers (AMCs) have traditionally provided medical care for the sickest patients and may be at particularly high risk for adverse selection, but whether this occurs is not known.

To determine whether managed care organizations (MCOs) representing AMCs are adversely selected by Medicaid managed care (MMC) enrollees with expensive chronic health conditions.

Observational study using state Medicaid claims data from all of 1994 and January to August 1995 for Tennessee's statewide MMC program (TennCare).

All 12 capitated MCOs in Tennessee, which collectively provided services for 1.2 million Medicaid enrollees from January 1994 through August 1995 following the initiation of TennCare.

Prevalence of 6 state-specified high-cost chronic conditions-acquired immunodeficiency syndrome (AIDS), coagulation defects, cystic fibrosis, pregnancy, prematurity, and organ transplantation-and 27 additional high-cost conditions compared by academic, statewide, and regional MCOs.

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; pregnancy, 3.3; cystic fibrosis, 2.4; and prevalence of prematurity was equivalent. Prevalence was higher for academic than for statewide MCOs for 22 of the additional 27 high-cost conditions considered and similar for the remaining 5 conditions.

Our results suggest that academic MCOs in an MMC system are selected by a large percentage of the sickest patients. Adverse selection may present serious financial risks for AMCs participating in managed care.