Do adjusted clinical groups eliminate incentives for HMOs to avoid substance abusers? Evidence from the Maryland medicaid healthchoice program

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Abstract
The adequacy of risk adjustment to eliminate incentives for managed care organizations (MCOs) to avoid enrolling costly patients has been questioned. This study explored systematic differences in expenditures between beneficiaries with and without substance disorders assigned to the same capitation rate group under the Maryland Medicaid HealthChoice program. The investigators used fiscal year (FY) 1995 to 1997 Medicaid data to assign beneficiaries to rate cells based on FY 1995 diagnoses and compared the distribution of expenditures for beneficiaries with and without substance disorders, defined using FY 1997 and FY 1995 diagnoses. Results showed that differences in FY 1997 expenditures between beneficiaries with and without FY 1995 substance disorders were negligible. However, MCOs could expect greater average losses and lower average profits on beneficiaries with FY 1997 substance disorders. Thus, the adjusted clinical groups methodology used to adjust capitation payments in the HealthChoice program attenuated, but did not eliminate, financial incentives for MCOs to avoid substance abusers.