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Special Communication
September 15, 1999

Academic Managed Care Organizations and Adverse Selection Under Medicaid Managed Care in Tennessee

Author Affiliations

Author Affiliations: Departments of Medicine (Drs Bailey and Schaberg and Mr Spears) and Preventive Medicine (Drs Bailey, Van Brunt, and Mirvis), University of Tennessee; Memphis Managed Care Corp (Mr McDaniel); and Department of Economics, University of Memphis (Dr Chang), Memphis. Mr McDaniel is employed by Memphis Managed Care Corp, which is an academic managed care organization providing services to Tennessee Medicaid enrollees. At the time of the study, Mr Spears was a summer research assistant for the Department of Medicine, University of Tennessee, through the McNair Program at the University of Tennessee, Memphis.

JAMA. 1999;282(11):1067-1072. doi:10.1001/jama.282.11.1067

Context 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.

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

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

Participants 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.

Main Outcome Measures 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.

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; 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.

Conclusions 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.