Medicaid HMOs in Mississippi: A Post Mortem

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Transcript of Medicaid HMOs in Mississippi: A Post Mortem

August 2006

MEDICAID HMOS IN MISSISSIPPI:A POST MORTEM

H. J. COSTELLOJ. S. COSSMANH. I. BURSON

Social ScienceResearch Center

Mississippi Health PolicyResearch Center

Mississippi State University

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Medicaid HMOs in Mississippi:

A Post Mortem

H.J. Costello, J.S. Cossman, H.I. Burson

Mississippi has – and always has had – one of the lowest managed care

penetration rates in the country.1 The state’s experiment with capitated managed care for

Medicaid enrollees collapsed within five years. What can we learn from the brief period

in which Mississippi Medicaid served enrollees through health maintenance

organizations (HMOs)? Particularly, what lessons can we draw that may help the

development and implementation of the Mississippi Medicaid Medical Home (MMMH)

program? Though HMOs and MMMHs differ markedly, the failure of the Medicaid

HMOs provides some cautionary lessons that can help guide the MMMH program.

This paper progresses as follows: The first section reviews the scope and

methods of the study. The second section reviews the motivation driving both the HMO

program and the MMMH – cost savings. The third section covers the implementation of

the HMO program, including the challenges of rurality and the lack of political support.

The fourth section discusses the demise of the HMO program. The final section draws

lessons from the review of the history of Medicaid HMOs in the state and applies them to

the MMMH program.

1 Currently, no Mississippi Medicaid recipients are enrolled in HMOs, and only 0.1% of all residents are HMO members (Kaiser Family Foundation, State Facts Online).

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Methods

This project arose out of a concurrent study we are currently conducting on the

MMMH program. The MMMH program includes elements similar to some of the

managed care programs. This posed the question: if Medicaid managed care failed in

Mississippi, how might MMMH avoid the same fate? To answer this, we set out to

identify the causes of the failure of Medicaid managed care.

To develop our answers, we reviewed the history of Medicaid managed care,

examining state archives, reading newspaper articles, and interviewing roughly 30

(CHECK THIS) people involved in the program, including legislators, Medicaid

administrators, HMO executives, and providers. The data we amassed were compiled

into a narrative and themes were identified. Where pertinent, we also drew from

academic literature to confirm and contrast Mississippi’s experience with that of other

states.

Program Impetus

A major impetus driving both HMOs and MMMH is cost savings. The challenge

to finding savings was as pressing during the 1990s as it is today.

During the first five years of the 1990s, overall health care costs in the state rose

from $4.73 billion to $6.64 billion (CMS, 2005), an increase of 29%. Between 1991 and

1997, Mississippi Medicaid funding rose at an annual rate of 14.5% (CMS, 2005).

Mississippi’s share of Medicaid funding, from the state’s general funds, however, rose at

only 5% per year during the same period (Ku, Berkowitz & Ullman, 1998).

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Medicaid costs are driven by both medical costs and variations in Medicaid

enrollment. Enrollment during the first five years of the 1990s grew from 496,000 to

564,300, a change of 12%. Enrollment growth was sharper in the first few years than in

1993-1995 (Ku, Berkowitz & Ullman, 1998). While non-trivial, the growth in enrollment

was substantially less than growth in total Medicaid funding. Clearly, medical costs were

driving the growth of the Medicaid budget.

With Medicaid medical costs rising, the Mississippi legislature and administration

sought ways to stem the tide. HMOs provided an attractive alternative to the existing fee-

for-service system. HMOs had been successfully implemented in many states (see

Draper, Hurley & Short, 2004) and shown to reduce the rate of increase in Medicaid

spending (see Kirby, Machlin & Cohen, 2003). During the 1995 regular legislative

session, the Division of Medicaid was mandated to implement capitated managed care in

limited areas. The following year, the legislature specified 11 counties for Medicaid

HMO enrollment: Bolivar, Coahoma, Hancock, Harrison, Humphreys, Leflore,

Sunflower, Tallahatchie, Warren, Washington, and Yazoo (DOM Annual Report, 1995-

1996). It should be noted that almost all of these counties are largely rural, containing

few sizable towns, and are not contiguous to urban centers (U.S. Census Bureau, 1989).

The legislature also established a Legislative Oversight Committee to review the

managed care activities of DOM and to make recommendations regarding the future

direction of Medicaid and managed care.

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HMO Program Implementation orphan

As Medicaid managed care rolled out in Mississippi, problems arose quickly and

sharply, challenging, and ultimately damaging the HMOs that signed up. The HMOs, it

appears, gambled on the mandatory enrollment of all Medicaid participants and the state-

wide expansion of the Medicaid-HMO program, and they lost.

The Health Care Finance Administration – the Federal agency charged with the

oversight of Medicaid and Medicare, now known as CMS, the Centers for Medicare and

Medicaid Services – approved a model HMO contract and capitation rates in 1996

(DOM, 1995). By the 1997 fiscal year, four HMOs had contracted with DOM to provide

capitated managed care: AmeriCan Medical Plans of Mississippi, Apex Healthcare of

Mississippi, Family Health Care Plus, and Mississippi Managed Care Network (DOM,

1997). The first counties to have HMOs up and running, Hancock and Harrison, started

getting service in February of that year. As the year progressed, HMOs started operations

in Washington, Forrest and Lauderdale Counties.

The HMOs conducted marketing campaigns to encourage Medicaid enrollees to

sign up with their plans. Incentives included more generous services, notably, eased or

eliminated limits on the number of visits an enrollee could have with a provider each

year. Some of the informants we interviewed mentioned rumors of HMOs offering non-

medical incentives such as sneakers and toasters to boost enrollment, but this was always

discussed as merely rumors, not first-hand knowledge.

A first indication of trouble appeared in the 1998 DOM Annual Report. Five

HMOs contracted with DOM to provide services for the 1998 fiscal year, but none of the

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entire original group of four continued their contracts. Apex Healthcare dropped out.

Two new HMOs, however, signed up, Care 3 and Phoenix Healthcare (DOM, 1998).

By the start of the 1999 fiscal year, four HMOs had contracted with DOM to

provide services. In June 1999, Mississippi Insurance Commissioner George Dale

announced that his agency would assume the business affairs of AmeriCan Medical Plans

under a consent order of voluntary rehabilitation. A month later, Care3 was placed under

financial rehabilitation, as was Xantus Healthplans.

At the start of the 2000 fiscal year, only a single HMO contracted with DOM. By

the end of the 1999 calendar year, Mississippi had no Medicaid beneficiaries enrolled

with HMOs (DOM, 2000).

What went wrong? We identify two main factors contributing to the demise of

the Medicaid HMOs in Mississippi: rurality and lack of political support, both of which

contributed to financial problems for the HMOs. The final death blow was struck by the

state legislature, when it declined to expand the program.

Rurality: It is widely recognized that HMOs lag in serving rural areas (see

Mosovice, Casey & Krein, 1997; Ricketts, Slifkin & Johnson-Webb, 1995; Serrato,

Brown & Bergeron, 1995; and Wellever & Daneen, 1994). Summarizing this literature,

Silberman et al. (1997) identify a number of characteristics of rural counties more likely

to attract managed care companies, including those that have higher populations and

population densities, greater physician supply, fewer hospital beds with higher occupancy

rates, few minorities, a greater proportion of the population employed in manufacturing,

and adjacency to metropolitan areas. None of these characteristics are common in

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Mississippi, and particularly not in the counties selected for initial roll-out of Medicaid

managed care.

There are a number of reasons that counties lacking these characteristics are less

attractive for HMOs. Again, Silberman et al. (1997) list key reasons identified in the

literature. Rural areas generally have low rates of health insurance coverage and few

large employers seeking coverage for their employees, meaning there is little potential

market (Ricketts, Taylor & Skatrud, 1997). Residents of rural areas use fewer services,

making it hard for HMOs to trim utilization (a common source of profits) (Serrato,

Brown & Bergeron, 1995). The scarcity of primary care providers makes it challenging

for HMOs to transfer care from more expensive types of care (Wysong et al., 1997).

Many rural providers operate at or close to capacity, and consequently HMOs have little

ability to negotiate lower fees in return for patient volume (RUPRI, 1995; Serrato, Brown

& Bergeron, 1995; Wellever & Daneen, 1994). The lack of home health services and

nursing homes makes it hard to move people out of extended hospital stays and into

cheaper community alternatives (McCarthy, Jacquart & Quam, 1995; Wellever &

Daneen, 1994). And, finally, rural physicians may be resistant to managed care

(Wellever & Daneen, 1994) and may lack the business sophistication needed to

successfully negotiate managed care (Ricketts, Taylor & Skatrud, 1997).

All of these factors primarily pertain to commercial HMOs, but HMOs serving

Medicaid populations are subject to them also. In general, Medicaid HMOs followed an

expansion pattern paralleling commercial managed care (Silberman et al., 1997). Many

states developed strategic approaches to implementing Medicaid managed care in rural

areas. Among these were implementation of fully capitated managed care statewide,

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thereby providing HMOs with a mix of rural and urban Medicaid clients at once, and

allowing plan variation in rural areas, such as allowing partial capitation when providers

were unready to accept the risk of full capitation. Other states delayed implementation of

Medicaid HMOs in rural areas until the plans gained experience in urban markets.

Finally, some states provided incentives like increased capitation rates and risk sharing

and imposed mandates for rural coverage (Silberman et al., 1997) in an effort to get

HMOs to cover rural areas.

In Mississippi, in contrast, Medicaid HMOs were launched in predominantly rural

markets without any special incentives. In addition, the state imposed the requirement of

a maximum travel distance of 50 miles to primary care providers. HMOs had to ensure

that providers were available within 50 miles of all plan members, in an attempt to

guarantee that plan members had a decent degree of access. This, too, could deter HMOs

from choosing to enter the market for Mississippi Medicaid services.

Furthermore, enrollment in HMOs was entirely voluntary for Medicaid

participants. DOM sought an opinion from the state’s Attorney General on whether

HMO enrollment could be made mandatory, but he ruled that was not possible without

specific state legislation (Notes of the DOM HMO Meeting, June 22, 1998). Bills that

would have allowed DOM to require HMO enrollment (Senate Bill No. 2318 and House

Bill 1736) died in the 1998 legislative session (Letter from Attorney General Mike Moore

to Representative Steve Holland, June 5, 1998).

Informants interviewed in the course of the study buttress this analysis. As one

informant noted, “You didn’t have volume, even if everybody in Medicaid had enrolled

… Three HMOs which were smart decided not to move forward.” The same informant

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discussed the difficult environment for small HMOs. She noted that some of the

Medicaid HMOs in Mississippi were very small, having only “twenty-five hundred

patients,” and that the Medicaid patient pool tended to be unhealthy, and hence costly to

cover.

Other informants suggested that the comparatively more-generous benefits

packages of Medicaid HMOs – including unlimited physician office visits and hospital

days, in contrast to limits on both imposed under Medicaid fee-for service – attracted less

healthy Medicaid participants, a form of adverse selection: “They were getting the

sickest of the Medicaid beneficiaries,” said one. Consequently, “They went bankrupt

probably just because they could not make ends meet serving that population,” said

another. A contributing problem may have been that the state had a primary care case

management program, HealthMACS, running concurrently with HMO implementation,

which “[took] the least expensive patients off the top,” (Notes of the DOM HMO

Meeting, June 17, 1997).

At least two informants noted the difficulty of signing up providers to participate

in the plans (see also Notes of the DOM HMO Meeting, October 14, 1997). “They have

had trouble recruiting not only physicians but hospitals as well,” said one informant.

HMOs were required to provide reasonable access through their networks, including

proximate physicians and hospitals, within each county. The reluctance of physicians

and other providers to sign on with the HMOs presented a grave challenge to the HMOs’

efforts to establish networks.

In retrospect, it seems that Mississippi legislators, by mandating that Medicaid

HMOs start out in rural counties, set an insurmountable challenge. Even commercial

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HMOs generally are slow to expand into rural areas, and Medicaid HMOs face the same

problems of putting together provider networks and amassing risk-pools among enrollees

with which the HMOs can be profitable.

Lack of Political Support: It is unclear whether the Medicaid HMO program ever

enjoyed significant support from any quarter. The only clear champion of the program

appears to have been DOM itself.

One informant called the program “Dead on arrival,” noting that the slow start of

the program allowed the political forces opposed to it to rally. She characterized the

dispute, as early as 1996, as a conflict between the Medicaid director who wanted to

expand the program statewide and the legislature that insisted on a limited roll-out.

Where did the opposition arise? When the legislature first mandated the program,

providers in the state were perhaps caught unprepared. Quickly, however, providers who

opposed the plan started talking to their legislators. Informants identified several sources

of opposition. One said the Hospital Association and Medical Association formed the

main opposition. Lack of physician support was confirmed by an informant from the

Medical Association. A DOM staff member involved in implementation of the program

remembered opposition from independent pharmacies. Other informants said everybody

in the provider community was opposed.

The arguments against Medicaid HMOs echo the familiar lines of opposition to

managed care throughout the country and it is hard to distinguish between deep-felt

conviction and lobbying points. “Providers knew how to really play up the negatives and

put them up there … They began to convince them [the public? the legislators? the

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providers?] that HMOs are not good. HMOs don’t pay on a timely basis. HMOs don’t

provide quality care. HMOs try to dictate to the doctor what to do. And [doctors] don’t

get paid for everything,” said an HMO executive.

Said one long-term legislator and key committee member, “Why in the hell would

I support something in the state of Mississippi that rationed health care…?” He

elaborated: “I have never in all my adulthood liked the concept of someone outside the

medical profession trying to tell me what care I need and what care I don’t need to get. I

think that … should be reserved for medical people… That’s just a basic philosophical

opinion I have.”

One tactic that may have been deliberately used by the opponents of managed

care was to characterize the HMOs as outsiders, despite the fact that all of the HMOs

that contracted with DOM were based in Mississippi. Whether or not it is a fair

characterization, Mississippians are notorious for being averse to outsiders telling them

how to run their own affairs. A DOM staff member recalled a speech in the legislature in

which someone said, “We don’t need any Philadelphia lawyers coming down here and

telling us how we need to do health care in Mississippi. We don’t need HMOs coming in

here and all that money that we are going to be giving is going back out of state. We got

our own people here and we can do this ourselves,” (Bowen, p. 20). The head of one

HMO – a native Mississippian – remembers being asked by a legislator where she was

from and whether she had a condominium in Florida, and being told that she talked

“mighty fast.” According to another informant, there was a widely-held perception that

lobbying funds in support of HMOs were being provided from out of state. Labeling the

HMOs as outsiders was a political tactic that found resonance in the state.

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One informant indicated that the major champion for the Medicaid HMO program

was the then director of DOM, Helen Wetherbee. “She looked for opportunities,” he

related. There was no one outside of Medicaid pushing for HMOs, said another

informant. Notes from DOM HMO meetings include numerous mentions of Wetherbee

advocating for the HMO program and for HMOs in several fora (June 9, 1998; March 18,

1998; December 17, 1997) and guiding HMOs in best strategies and policies for

furthering their cause (October 14, 1997). A DOM staff member, however, recalled that

Wetherbee “didn’t have a great relationship with the providers and she made no bones

about it.” Wetherbee herself shared with us that she famously accused providers of

“feeding at the Medicaid trough,” as mentioned by other informants.

Within the state legislature, views on Medicaid HMOs divided on racial but not

necessarily party lines. Originally, the Black Caucus in the legislature opposed Medicaid

HMOs, recalled a legislator. Abruptly, however, they changed position, providing

enough votes for the legislation mandating the program. The legislator attributed this

shift in position to lobbying by an “intelligent and articulate” African American head of a

growing HMO, though he also recalled rumors of HMOs distributing free sneakers in the

African American community to curry support. Due to the concentration of the black

population in poor Delta counties, however, other legislators attributed the racial division

over Medicaid HMOs to a conflict of/between?? demographic and wealth divisions rather

than a solely racial split. In poorer counties, it was hoped that HMOs would bring more

medical resources to the region, according to one legislator with whom we spoke..

The vote to start the Medicaid HMO program allied white Republicans with black

Democrats, while white Democrats were split on the issue, one legislator recalled. The

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Black Caucus, as mentioned above, looked on HMOs as a potential source of new

medical resources, said the legislator, while Republicans supported HMOs due to their

general affinity for big business, according to another legislator.

HMO Demise

Medicaid HMOs were launched as a pilot program in a few counties with

voluntary participation. Expansion beyond the original 11 counties was never authorized

by the legislature, nor was mandatory enrollment. Ultimately, HMO companies found

that serving relatively few people – and often comparatively sick people, due to the

adverse selection into the program – was not a viable business model.

Review of the HMO’s financial reports to Medicaid shows that several companies

hemorrhaged money. During reporting periods in 1997, one plan lost money at a rate of

41% of its revenue meaning it made 59% profit?? (Mississippi Managed Care Network,

HMO Financial Analysis for the Period Ended September 30, 1997) while another lost a

staggering 121% (American Medical Plans of Mississippi, HMO Financial Analysis for

the Period Ended August 31, 1997). The latter company spent more on administrative

costs alone than it took in as revenue. Patient care costs, too, exceeded revenue.

A staff member in the Insurance Department, which is charged with the oversight

of HMOs along with other insurance plans, summed it up: “They were not making any

money” (Harrell, p. 1). He said that none of the HMOs were prepared to operate at a loss

for the period of time it would take to develop the business and start turning a profit.

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Furthermore, companies initially sacrificed profits in an effort to gain market share but

they never managed to achieve profitability.

Numerous informants indicated that the HMOs simply could not survive serving

only a few Medicaid participants in a handful of counties. According to many

informants, the HMOs were apparently banking on the statewide expansion of the

Medicaid HMO program and/or the mandatory enrollment of Medicaid participants in

HMOs. The possible expansion of the program and making HMO enrollment mandatory

for Medicaid participants were near-constant themes at DOM HMO meetings as well

(Note from the DOM HMO Meeting, June 9, 1998; June 22, 1998; March 18, 1998;

October 14, 1997), but the state legislature did not oblige.

Helen Wetherbee, then Director of DOM, tersely summed up the cause of the

demise of the Medicaid HMO program. “It really ended because opposition in this state

was successful” (p. 8). Perhaps it was foolhardy of the HMOs to enter the market to

serve only a few counties with voluntary enrollment. They could not make money there.

But the legislature pulled the trigger. By opposing expansion and mandatory enrollment,

they killed Medicaid managed care in Mississippi.

Lessons for MMMH

Now, the state government is similarly seeking alternatives in Medicaid

administration to help restrain spending growth by utilizing the Mississippi Medicaid

Medical Home program. Experience with HMOs illustrates that changing the way in

which Medicaid is administered has little influence on enrollment trends. If enrollment

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grows, the Medicaid budget will increase regardless. Expectations about the influence of

MMMH on the Medicaid budget should be tempered by the recognition that the program

is unlikely to directly influence enrollment.

Mississippi Medicaid Medical Home is a program designed to encourage

Medicaid enrollees to identify a usual source of care – a physician, nurse practitioner or

clinic, but not a hospital emergency department – on whom they will rely to guide their

health care utilization. DOM hopes the MMMH program will improve the quality of

care, increase access, and decrease net costs. At their annual eligibility interview,

Medicaid enrollees are encouraged to identify a usual source of care, that is, a medical

home. They can then take advantage of an annual physical exam, a service that Medicaid

has not covered previously. The notion is that by developing a relationship with a

medical home, Medicaid enrollees will be better able to identify and treat medical

problems before they become severe and will be less likely to use hospital services for

issues that can be dealt with in a doctor’s office or clinic.

MMMH has already sidestepped several pitfalls that damaged the Medicaid

HMOs. MMMH is being launched throughout the state and information about the

program is provided to all Medicaid enrollees. It is voluntary, not mandatory;

participants are encouraged to identify a medical home, but there is no requirement that

they do so, nor is there an enforcement mechanism to ensure that they use that medical

home for their primary health care services. MMMH does not involve private

companies. It is a component of Medicaid that, if utilized, modestly changes the

relationships between enrollees and DOM as well as between enrollees and providers.

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Statewide rollout of the program and the absence of a voluntary/compulsory

distinction should limit confusion about who should participate and where. Introduction

of MMMH during face-to-face eligibility interviews should help clarify for beneficiaries

what they might expect of the program. The fact that MMMH involves no corporations

should mean that the program is relatively free of politics and influence inherent with

parties with vested interests.

A final facet of program development shared by HMOs and MMMH, however,

could prove problematic. When Medicaid HMOs were developed in Mississippi, some

beneficiaries and their advocates complained of a lack of input into the program (though

it should be noted that focus groups with beneficiaries were conducted prior to

implementation). Beneficiaries and advocates may have been able to suggest program

modifications that would have helped enrollees, HMOs, and DOM. At a minimum, their

lack of input alienated some enrollees and made them suspicious of the program. There

has been no beneficiary input in the development of the MMMH program and it may be a

weaker program as a consequence.

MMMH Program Implementation: Many elements of the Medicaid HMO

program – some of which were ultimately damaging – simply do not pertain to MMMH.

As mentioned above, HMOs were rolled out in a few select counties, many of which

were highly rural. Rurality is associated with challenges, including stitching together

provider networks and the lack of competition among providers, both of which made

administering HMOs extremely difficult. Although notices informing Medicaid enrollees

of the HMO program were posted in social services offices and notices were sent out,

there were perceived difficulties in educating enrollees, particularly in rural counties,

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about the changes. It is clear that the success of the Medicaid HMOs’ business model

hinged on the expansion of the program throughout the state, which never happened.

MMMH, in contrast, is being rolled out throughout the state, in rural and urban

counties simultaneously. There are no particular benefits to the program that bring the

issue of adverse selection into play. Furthermore, MMMH is not dependent on the

financial viability of corporations.

One problem that Medicaid HMOs encountered, however, may also hit MMMH,

namely beneficiary education. Certainly, HMOs are vastly more complex than the

MMMH. Nonetheless, the history of the Medicaid HMOs illustrates that a key

determinant of the success of a program is ensuring that the beneficiaries understand

what services are available to them and what they must do to get those services.

While HMOs are more complex than the MMMH, nonetheless the viability of the

program depends on beneficiary and provider education. To date, providers have been

notified of the availability of billing codes through which to charge Medicaid for annual

exams, but there has been no campaign introducing the program to beneficiaries,

explaining what they should expect and how they might benefit. Without such a

campaign, DOM is forfeiting support from both beneficiaries and providers.

Challenges: The Medicaid HMOs ultimately failed because they could not

become profitable quickly enough nor provide immediate savings to the state. The

companies imploded financially and simultaneously lost support from the state

government. MMMH runs a similar risk.

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MMMH provides a single, relatively inexpensive extra service to beneficiaries, an

annual physical. While that service, in and of itself, may not place an undue financial

burden on the Medicaid budget, it is quite likely that sicker people will avail themselves

of the physical first and that the physicals will turn up medical problems that previously

would have gone untreated. Annual physicals will likely reveal health problems that

must be addressed. Additionally, once people have an entrée into the health system, they

are likely to use additional services. These may add up to a moderate surge in Medicaid

spending. Ultimately, MMMH should both improve beneficiaries’ health and reduce

their use of emergency services (directly and in conjunction with an emergency room

redirect program, already underway), both of which should reduce net Medicaid

spending. The program, however, should be seen as an investment that will pay off only

after an initial increase in costs.

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BIBLIOGRAPHY

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Wysong, J.A., T.C. Rosenthal, P.A. James, M.K Bliss, M.E. Horwitz, and A. Danzo, 1997. Introducing Medicaid Managed Care in Rural Communities: Guidelines for Policymakers, Planners, and State Administrators, New York Rural Health Research Center, Department of Family Medicine, State University of NewYork at Buffalo.

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