Senate Joint Resolution (SJR) 108 of the 1998 General Assembly directed the Joint Commission on Health Care to study and analyze opportunities to enhance the ability of the Commonwealth's academic health centers (the Medical College of Virginia at Virginia Commonwealth University, University of Virginia Health Sciences Center, and Eastern Virginia Medical School) to participate in managed care networks.

The SJR 108 study was conducted in response to growing concerns among the Commonwealth's academic health centers (AHCs) that as managed care organizations (MCOs) seek to reduce health care costs for their enrollees through more aggressive provider contracting, the AHCs may be excluded from the managed care provider networks. The AHCs also are concerned that exclusion from managed care networks will cause a decline in third-party reimbursement, making it increasingly difficult to maintain their traditional functions of medical education, research, and indigent care.

Based on our research and analysis during this review, we concluded the following:

• MCOs engage, to some degree, in "selective contracting" with the AHCs by excluding certain services (e.g., home health services) offered by the AHCs from the provider contract;

• the MCOs' contracting practices with the AHCs are similar to those used when contracting with other private hospitals;

• in some instances, MCOs negotiate an exclusive arrangement with one hospital or a limited number of affiliated hospitals to direct a greater number of patients to the hospital in return for lower costs per service;

• requiring the MCOs that contract with the state employee health benefits program to include the AHCs as fully participating providers in all managed care networks would help alleviate the practice of selective contracting; however, the insurance industry, other providers and the Department of Personnel and Training are opposed to this approach due to the potential impact on MCOs' ability to develop cost-effective networks and the potential negative impact on other community providers' ability to participate in MCO networks;

• retaining Medicaid patients is vitally important to the AHCs because of disproportionate share hospital payments and because Medicaid patients provide medical students with experience in treating a broader range of medical conditions;

• requiring Medicaid HMOs to include the AHCs in their provider networks would help ensure the AHCs retain their Medicaid patient base; however, MCOs and other Medicaid providers oppose mandating inclusion of the AHCs in the Medicaid HMO networks due to the potential adverse impact on the cost-effectiveness of the networks and the ability of other community providers to participate in the Medicaid HMO networks; and

• there are numerous financial and operational issues facing the Commonwealths AHCs which are complex and much broader in scope than those discussed in this report; a more comprehensive study of these issues may be of significant value to the AHCs and the Commonwealth in determining how best to support these institutions.

A number of policy options were offered for consideration by the Joint Commission on Health Care regarding the issues discussed in this report. These policy options are listed on pages 19-20.

Our review process on this topic included an initial staff briefing, which comprises the body of this report. This was followed by a public comment period during which time interested parties forwarded written comments to us regarding the report. The public comments (Appendix B) provide additional insight into the issues covered in this report.