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Rural Health Care: Challenges & Opportunities

Managed Care


Keith J. Mueller, Ph.D., Director, Nebraska Center for Rural Health Research, University of Nebraska Medical Center, Omaha, NE.

Carol A. Beam, C.P.A., M.B.A., President and Chief Executive Officer (CEO), Yellowstone Community Health Plan, Billings, MT.

Joan Bantz, R.H.U., M.P.A., Manager, System Delivery Unit, State of Oregon, Office of Medical Assistance Programs, Salem, OR.

This session addressed factors needed to support the growth of managed care in rural areas and shared experiences of Medicaid and Medicare managed care programs serving rural populations.

Dr. Mueller explained that although the rapid spread of managed care in recent years has been concentrated in urban areas, the roots of managed care can be traced to applications in a rural setting. Successful managed care organizations are difficult to build in rural areas, with challenges such as:

  • Enrolling sufficient numbers of individuals to accept risk for the costs of care.
  • Securing discounted pricing from competing physicians and hospitals.
  • Establishing cost-effective alternatives to acute care in clinical practices.

Evidence of penetration of managed care in rural areas includes the following:

  • InterStudy estimated that in 1996, 9 percent of all health maintenance organization (HMO) enrollees were located in rural areas.
  • There is at least some rural area Medicaid enrollment in every State except Alaska and Wyoming.
  • In December 1998, there was 90 percent Medicaid enrollment in rural areas in Tennessee, Washington, Missouri, Utah, and Colorado.
  • In June 1997, 57.2 percent of rural counties had Medicaid managed care enrollment.
  • With regard to Medicare, the percentage of rural enrollees in managed care was 2.45 percent in June 1999, up from 1.39 percent in December 1996. In October 1999, there were 237,000 enrollees in managed care in rural areas.
  • There are four States (Wisconsin, Oregon, Washington, Arizona) with some rural areas with capitated Medicaid managed care.

Problems with Medicare managed care in rural areas:

  • Volatility of payment (before the Balanced Budget Act of 1997 [BBA], this was a major problem, with uncertainty in risk adjustments, defining market/service areas, underlying fee-for-service based used in calculation).
  • Variability of payment (rural counties at low end, enrollment influences, payment based on previous use and adverse risk selection, risk adjustment not covered).

What are the incentives for rural areas to enter the managed care market?

  • Service to the elderly in the community.
  • Control over medical management.
  • Financial gain in comparison with fee-for-service payment.

What lessons have been learned from efforts to induce managed care into rural areas?

From rural managed care demonstration centers:

  • Persistence among leaders.
  • Overcoming local biases about managed care.
  • Maturing managed care experience among local leadership.

From the Rural Policy Research Institute (RUPRI) research in market forces:

  • Motivators include Medicaid and public employees.
  • Large delivery systems (little interest elsewhere).

From current Medicare+Choice study:

  • Critical mass of population necessary.
  • Urban-based expansion.
  • Lack of readiness.

Factors needed to support the growth of managed care in rural areas (ingredients for success):

  • Financing.
  • Plan design.
  • Organizational design.
  • Quality assurance.
  • Marketing.
  • Negotiations.
  • Information systems.

Ms. Beam presented a real-life experience with managed care in a rural area. Under a Medicare Choices Demonstration Project through the Federal Government, the Yellowstone Community Health Plan uses a rural-based managed care plan model, comprised of a rural provider network that contracts on behalf of its members with managed care plans. The model establishes a partnership between local providers and a commercial insurance entity; in this case, a partnership of a large hospital and health center with Blue Cross and Blue Shield of Montana.

Ms. Beam found that implementing Medicare managed care did not work successfully for Yellowstone Community Health Plan. The plan encountered several difficulties implementing managed care for Medicare clients, including:

  • The level of consumer knowledge was not high.
  • Administrative costs of the program were greater than expected.
  • Complying with Health Care Financing Administration (HCFA) quality-reporting requirements was expensive.
  • HCFA's adjusted average per capita cost (AAPCC) payment methodology did not yield sufficient revenues.

As a result of these difficulties, Yellowstone Community Health Plan is no longer offering a Medicare plan. Ms. Beam reported that the major reason for the plan's withdrawal from Medicare was inadequate reimbursement from HCFA. She suggested that the AAPCC payment structure could be improved if plans received the entire per member per month (PMPM) payment estimated from the AAPCC methodology, rather than only a fraction of the payment. However, even HCFA's full PMPM rate was below Yellowstone's cost of providing care for its Medicare enrollees.

Ms. Bantz discussed the history of the Oregon Health Plan (OHP), current marketplace challenges, and strategies that are being implemented.

The OHP began in 1991 through an 1115 demonstration waiver in cooperation with HCFA. The plan established a comprehensive strategy to deliver affordable health care to persons eligible for Medicaid within a coordinated managed care system.

The goals of the OHP include:

  • Expanded access for Oregon's low-income population.
  • Cost containment to make expanded coverage affordable.
  • A more stable system of health care financing.
  • Delivery by reducing cost-shifting and making health care expenditures for the poor more predictable.

Oregon supported this endeavor by agreeing to pay reasonable cost-based reimbursement to providers. The OHP uses a primary care organizational model that is partially capped. The plan encourages flexibility and partnerships of plans, communities, and State-allied agencies.

The OHP is not Medicaid, although Medicaid is one of its member agencies. The OHP is made up several Department of Human Services programs, such as insurance and high-risk pools, policy and research office, drug and alcohol, mental health and disabilities, aging, welfare, and quality assessment.

The OHP has been able to focus on the goal of keeping Oregonians healthy. Clients have maintained or improved health status since the OHP's inception in 1991. Clients report better access to care, and the OHP has built one of the largest immunization registries in the country.

Rural challenges encountered by the OHP include:

  • HMO pullout of some rural areas that have seen large losses.
  • Provider/consumer managed care backlash.
  • Budget demands and competing priorities.
  • Term limits. (According to Ms. Bantz, Oregon has a legislative body with little understanding of the initial intended purpose of the OHP and the complexities of health care.)

Ms. Bantz summarized the following points about rural design:

  • The program must be flexible and community-driven.
  • Communication is vital.
  • Mixed models are viable but very challenging to administer.
  • There is a need for a well-educated and sophisticated workforce to sustain such a program.


Kongstvedt P, ed. Managed care handbook. Gaithersburg, MD: Aspen Publishers, Inc.; 2000.

Loue S, Quill B, eds. Handbook of rural health. New York: Kluwer Academic; 2000.

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