Disease Management and the Medical Home Model

For the past decade, US physicians have failed to embrace disease management (DM) approaches offered by private DM companies and health plans. Until recently, physicians have not offered an alternative, systematic approach to caring for patients with chronic illnesses and conditions.The medical home model has become the centerpiece of reforms proposed by associations that represent family medicine physicians (the American Academy of Family Physicians [AAFP]) and general internal medicine physicians (the American College of Physicians [ACP]). In February 2007, the AAFP and the ACP were joined by the American Academy of Pediatrics and the American Osteopathic Association in issuing joint principles for the patient-centered medical home. While the medical home model is promoted primarily as a comprehensive approach to primary care reform, there is one aspect where the medical home and DM overlap: care coordination.Medicare has been exploring alternative mechanisms to manage and reimburse chronic care and care-coordination activities. In 2003, the US Congress passed legislation to require pilot projects for chronic care improvement programs; the program implementing this legislation is Medicare Health Support (MHS). To date, very little information has been available about the progress of MHS projects. The three early announcements about MHS progress have not been encouraging: the expected financial results are not being achieved.In December 2006, Congress passed legislation authorizing the Medicare Medical Home Demonstration (MMHD) project. MHS and MMHD are directed at similar patient populations: high-cost, frail, elderly patients with multiple co-morbid conditions. The medical home concept being advanced by primary care physicians has the potential to be competitive with DM companies. Health plans that have built their own DM programs are more likely to be supportive of the medical home model. Do physicians have the ability to compete at providing care-coordination services? There are strong arguments suggesting ‘no’ and strong arguments suggesting ‘yes’.While the medical home model is focused on primary care reform, its effect could be competitive to DM companies and others. The medical home model could affect the flow of hundreds of billions of dollars — money that over time might flow either to physicians or to private companies.     

Disease Management Programs

Disease management programs in the US were originally developed for the small minority of patients who consumed a large portion of healthcare resources, were complex cases to manage, or had specific chronic conditions. Although they vary in structure and are hard to describe with a single definition they usually contain one or more core components which may include the use of evidence-based practice guidelines, integrated information systems, and continuous quality improvement activities and processes. The literature describing disease management program outcomes and cost savings has been lacking, and published results tend to lack rigorous scientific discipline.The future and success of disease management will be measured by the efficacy of programs that impact the needs of individuals who have multiple chronic conditions. New second-generation programs will be designed around population-based methods to identify individuals with chronic illnesses, a primary care team that provides individualized medical management, documentation of outcomes beyond traditional utilization and cost measures, and quality improvement processes that identify areas for improvement through integrated information technology systems. In 2002, the Center for Medicare and Medicaid Services will begin operation of the Medicare Coordinated Care Demonstration project, a 4-year study to test whether combined disease and case management programs can improve clinical outcomes, satisfaction, quality of life, and cost outcomes for beneficiaries with multiple chronic conditions. If the demonstration is successful it has the possibility of placing second-generation disease management programs at the forefront of chronic illness management.     

The Opportunity for Health Plans to Improve Quality and Reduce Costs by Embracing Primary Care Medical Homes

Background

The large and growing costs of healthcare will continue to burden all payers in the nation''s healthcare system—not only the states that are struggling to meet Medicaid costs and the federal government, but also the private health plans that serve commercial, Medicare Advantage, and Medicaid beneficiaries. Cost will increasingly become a concern as millions more people become newly insured as a result of the Patient Protection and Affordable Care Act (ACA). Primary care delivery through patient-centered medical homes (PCMHs) and other coordinated-care models have improved care and reduced costs. Health plans have a strategic opportunity to promote better care at a lower cost by embracing medical homes and encouraging their growth. Health plans can play an important role in transforming the US healthcare system, as well as better position themselves for long-term corporate success.

Objectives

To discuss several examples of organizations that serve a variety of beneficiaries and have been successful in promoting medical homes and coordinated primary care, and to suggest steps that health plans can take to improve the quality of care and reduce costs.

Discussion

The models discussed in this article take a number of different approaches to create incentives for high-quality, cost-effective, coordinated primary care. Several health plans and groups use enhanced fee-for-service or per-member per-month payment models for primary care physician (PCP) practices that reach a specified level of medical home or electronic health record certification. Most of the examples addressed in this article also include an additional payment to encourage care management and coordination. The results showed a significant decline in costs and in the use of expensive medical services. One Medicaid coordinated-care program we reviewed saved almost $1 billion in reduced spending over 4 years, and achieves savings of approximately 15% within 6 months of the beneficiaries'' enrollment into their program. Another PCMH payer program led to an approximate 28% reduction in acute care hospital admissions among Medicare beneficiaries and an approximate 38% reduction in admissions among commercial beneficiaries.

Conclusion

Based on the review of real-world examples, we recommend 6 steps that health plans can use to take advantage of the opportunity to embrace medical homes as a means to improve healthcare quality and to reduce costs. These recommendations include getting feedback from PCPs to improve plan provider networks, creating value-based primary care reimbursement systems, encouraging biannual visits with high-risk patients, funding case managers for high-risk patients, considering Medicaid coordinated-care models, and promoting ACA policies that support primary care.The large and growing cost of healthcare, which amounted to 17.9% of the gross domestic product in 2011,1 will continue to be a burden for all payers in the US healthcare system, not only for states that are struggling to meet Medicaid costs and the federal government''s requirements, but also for private health plans that serve commercial, Medicare Advantage, and Medicaid beneficiaries.2,3 Costs will continue to grow as millions more people become newly insured because of the Patient Protection and Affordable Care Act (ACA).Primary care that is delivered through patient-centered medical homes (PCMHs) and other coordinated-care models has served as a means to improve care and to reduce costs.4,5 Health plans, therefore, have a strategic opportunity to promote better care at a lower cost by embracing medical homes and encouraging their growth. Using this strategy would enable health plans to play an important role in transforming the US healthcare system, and to be better positioned for long-term corporate success.Large business groups already have taken note of the potential for primary care and medical homes to reduce their healthcare costs. The National Business Group on Health (NBGH), which has more than 300 large corporate members that provide health insurance for 50 million Americans, has made primary care, and more recently the PCMH model, a priority “for years,” said NBGH Vice President Veronica Goff in an April 18, 2012, telephone interview. Several large employers are conducting PCMH pilot programs, including IBM, Boeing, Whirlpool, Dow Chemical, and Perdue Farms. Some state Medicaid programs and private health plans have also launched efforts to establish medical homes.In this article, we discuss several examples of organizations that serve a variety of beneficiaries and that have been successful in promoting medical homes and coordinated primary care. We review their results and make recommendations to health plans that are interested in seizing this opportunity.     

Assessing Beneficiary Health Outcomes and Disease Management Initiatives in Medicare

Introduction: Provisions in the Balanced Budget Act of 1997 directed the US Centers for Medicare and Medicaid Services (CMS, formerly the Health Care Financing Administration) to begin focusing attention on the standardized measurement of health outcomes of Medicare beneficiaries as well as testing the effectiveness of various disease management interventions at improving these outcomes.The CMS, in collaboration with the US National Committee for Quality Assurance, developed the Medicare Health Outcomes Survey (HOS) as the first health outcomes measure from the patient’s perspective in Medicare managed care. This new source of data, using the Medical Outcomes Study Short Form 36-Item Health survey (SF-36®) as its core measure, provides valuable standardized health outcomes information about Medicare managed care enrollees in general and the chronically ill in particular. Study design: From May through July 1998, a longitudinal, self-administered survey which utilized the SF-36® (a health status measure which assesses both physical and mental functioning) was administered to 1000 randomly sampled Medicare beneficiaries who were continuously enrolled for a 6-month period in a Medicare managed care health plan. This cohort was re-surveyed from April though June of 2000. We analyzed data from the cohort I baseline and re-measurement analytic sample of 51 700 individuals. Results: Using the change in SF-36® physical component summary scores and mental component summary scores over a 2-year period, we demonstrated that the presence of chronic disease has a negative impact on both the physical and mental health functioning of Medicare managed care enrollees over time. With few exceptions, the negative effect of chronic disease on physical and mental health is found to be independent of gender, race, and socioeconomic status as measured by level of educational attainment. Differences in mean health status scores across levels of chronic conditions suggest that preventing the onset of disease is best for maintaining optimal health. Conclusions: Disease management interventions which are properly designed and implemented have been shown to measurably improve patient outcomes by providing high quality, cost-effective care. Recognizing the need for standardized outcome measures and scientifically validated disease management interventions, the CMS has taken a leadership role by developing and implementing the Medicare HOS and disease management demonstration projects.     

Multiple payers,commonality and free-riding in health care: Medicare and private payers

Managed health care plans and providers in the US and elsewhere sell their services to multiple payers. For example, the three largest groups of purchasers from health plans in the US are employers, Medicaid plans, and Medicare, with the first two accounting for over 90% of the total enrollees. In the case of hospitals, Medicare is the largest buyer, but it alone only accounts for 40% of the total payments. While payers have different objectives and use different contracting practices, the plans and providers set some elements of the quality in common for all payers. In this paper, we study the interactions between a public payer, modeled on Medicare, which sets a price and takes any willing provider, a private payer, which limits providers and pays a price on the basis of quality, and a provider/plan, in the presence of shared elements of quality. The provider compromises in response to divergent incentives from payers. The private sector dilutes Medicare payment initiatives, and may, under some circumstances, repair Medicare payment policy mistakes. If Medicare behaves strategically in the presence of private payers, it can free-ride on the private payer and set its prices too low. Our paper has many testable implications, including a new hypothesis for why Medicare has failed to gain acceptance of health plans in the US.     

Gender disparities in cardiovascular disease care among commercial and medicare managed care plans.

BACKGROUND: Gender disparities in cardiovascular care have been documented in studies of patients, but little is known about whether these disparities persist among managed health care plans. This study examined 1) the feasibility of gender-stratified quality of care reporting by commercial and Medicare health plans; 2) possible gender differences in performance on prevention and treatment of cardiovascular disease in US health plans; and 3) factors that may contribute to disparities as well as potential opportunities for closing the disparity gap. METHODS: We evaluated plan-level performance on Healthcare Effectiveness Data and Information Set (HEDIS) measures using a national sample of commercial health plans that voluntarily reported gender-stratified data and for all Medicare plans with valid member-level data that allowed the computation of gender-stratified performance data. Key informant interviews were conducted with a subset of commercial plans. Participating commercial plans in this study tended to be larger and higher performing than other plans who routinely report on HEDIS performance. RESULTS: Nearly all Medicare and commercial plans had sufficient numbers of eligible members to allow for stable reporting of gender-stratified performance rates for diabetes and hypertension, but fewer commercial plans were able to report gender-stratified data on measures where eligibility was based on recent cardiac events. Over half of participating commercial plans showed a disparity of >/=5% in favor of men for cholesterol control measures among persons with diabetes and persons with a recent cardiovascular procedure or heart attack, whereas no commercial plans showed such disparities in favor of women. These gender differences favoring men were even larger for Medicare plans, and disparities were not linked to health plan performance or region. CONCLUSIONS AND DISCUSSION: Eliminating gender disparities in selected cardiovascular disease preventive quality of care measures has the potential to reduce major cardiac events including death by 4,785-10,170 per year among persons enrolled in US health plans. Health plans should be encouraged to collect and monitor quality of care data for cardiovascular disease for men and women separately as a focus for quality improvement.     

Health outcomes. New quality measure for Medicare.

OBJECTIVE: A new measurement of health care quality for Medicare beneficiaries has been implemented by the Health Care Financing Administration (HCFA). This paper describes the program, presents baseline data and highlights associated issues. DESIGN: The Health Outcomes Survey (HOS) is a longitudinal cohort mail survey. Changes in population health status after 2 years will be evaluated on an individual plan level. SETTING: Two-hundred and eighty-seven US Medicare managed care plans. MAIN OUTCOMES MEASURES: Physical component and mental component summary scales derived from the SF-36. FINDINGS: Baseline data documented lower health status in older populations, while functional limitations and disease prevalence were higher. Among different plans, mean functional levels were found to be similar, although a few plans contained populations with exceptionally low levels. These data do not support the assertion that enrolees in for-profit plans are healthier than non-profit plans. CONCLUSIONS/IMPLICATIONS: The HOS is the first large-scale program to evaluate health outcomes among older Americans. HCFA recognizes several technical and policy issues. Technical issues include possible biased reporting for subpopulations, the validity of proxy responses and respondent burden. Policy issues concern the appropriateness of using a generic measure such as the SF-36 and how much change in health status can be attributed to quality of health care. HCFA plans to extend the HOS to beneficiaries in traditional Medicare. The HOS project is expected to encourage more efforts to maintain or improve the health status of the Medicare managed care population.     

The performance of Medicare, Medicaid, and individual commercial products

Medicare, Medicaid, and individual nongovernmental insurance products are marketed by commercial health insurance companies. We propose that the product offerings be viewed as a group rather than as separate products competing for internal company resources. A study population consisting of 35 Aetna plans in 24 states, 124 Blue Cross Blue Shield plans (BCBS) in 45 states and the District of Columbia, 43 Cigna plans in 28 states, and 23 UnitedHealth plans in 22 states was examined on 29 variables, including financial, marketing, and medical management data. The findings revealed that Medicaid and individual nongovernmental products were terminated more often than other products across all ownership types. When BCBS plans were analyzed across for-profit, nonprofit, and mutual ownership types, the companies had distinct preferences for product offerings. The study provided evidence that health plans will limit their exposure to Medicare, Medicaid, and individual nongovernmental products in preference to comprehensive/group products.     

Designing health insurance information for the Medicare beneficiary: a policy synthesis.

Can Medicare beneficiaries make rational and informed decisions about their coverage under the Medicare program? Recent policy developments in the Medicare program have been based on the theory of competition in medical care. One of the key assumptions of the competitive model is the free flow of adequate information, enabling the consumer to make an informed choice from among the various sellers of a particular product. Options for Medicare beneficiaries in supplementing their basic Medicare coverage include the purchase of private supplementary insurance policies or enrollment in a Medicare HMO. These consumers, in a complex health insurance market, have only limited information available to them because many health plans do not make adequate comparable product information available. Moreover, since the introduction of the Medicare HMO option, the long-range plan for management of the Medicare budget has become based on the large-scale voluntary enrollment of beneficiaries into capitated health plans. The policy instrument that has been used to improve beneficiary decisions on how to supplement Medicare coverage is the informational or educational program. This synthesis presents findings regarding the relative effectiveness of different types of health insurance information programs for the Medicare beneficiary in an effort to promote practical use of the most effective types of information.     

PMD6 Chronic Care Costs of New Medicare HMO Enrollees: Implications for Disease Management

Cost-effective care for chronic conditions is a growing concern of health plans enrolling increasing numbers of the elderly and disabled under Medicare risk contracts. This study provides evidence of the prevalence, patterns of care, and costs of chronic illnesses among new Medicare HMO enrollees. The results provide a foundation for estimates of the cost-effectiveness of drug therapy and care management programs that serve this group.
METHODS: We used national Medicare claims data to examine chronic care services and associated costs for a sample of 19,084 beneficiaries who enrolled in an HMO in 1995. We constructed three measures of cost: the total Medicare-covered cost, the cost of medical claims with the chronic condition coded as a diagnosis, and the regression-estimated effect of the chronic condition on cost.
RESULTS: 58% of the new Medicare HMO enrollees in our sample were treated for at least one of the selected chronic conditions in the six months before enrollment. One-third of the new enrollees had multiple conditions represented by diagnoses in more than one of eighteen chronic-condition groups. Persons with chronic conditions accounted for 93% of pre-enrollment Medicare costs among new HMO enrollees. Per 1,000 enrollees, pre-enrollment Medicare costs were greatest for those with hypertensive disease, coronary heart disease, heart failure, and diabetes.
CONCLUSIONS: The concentration of utilization and costs in those with chronic conditions suggests that appropriate drug therapy and care management for those with chronic conditions should be a top priority for HMOs with Medicare risk contracts. These estimates of prevalence suggest a need for HMOs to screen new Medicare HMO enrollees for chronic conditions immediately upon enrollment to ensure continuity of care.     

Trends in Medicare Part D Medication Therapy Management Eligibility Criteria

Background

To increase the enrollment rate of medication therapy management (MTM) programs in Medicare Part D plans, the US Centers for Medicare & Medicaid Services (CMS) lowered the allowable eligibility thresholds based on the number of chronic diseases and Part D drugs for Medicare Part D plans for 2010 and after. However, an increase in MTM enrollment rates has not been realized.

Objectives

To describe trends in MTM eligibility thresholds used by Medicare Part D plans and to identify patterns that may hinder enrollment in MTM programs.

Methods

This study analyzed data extracted from the Medicare Part D MTM Programs Fact Sheets (2008–2014). The annual percentages of utilizing each threshold value of the number of chronic diseases and Part D drugs, as well as other aspects of MTM enrollment practices, were analyzed among Medicare MTM programs that were established by Medicare Part D plans.

Results

For 2010 and after, increased proportions of Medicare Part D plans set their eligibility thresholds at the maximum numbers allowable. For example, in 2008, 48.7% of Medicare Part D plans (N = 347:712) opened MTM enrollment to Medicare beneficiaries with only 2 chronic disease states (specific diseases varied between plans), whereas the other half restricted enrollment to patients with a minimum of 3 to 5 chronic disease states. After 2010, only approximately 20% of plans opened their MTM enrollment to patients with 2 chronic disease states, with the remaining 80% restricting enrollment to patients with 3 or more chronic diseases.

Conclusion

The policy change by CMS for 2010 and after is associated with increased proportions of plans setting their MTM eligibility thresholds at the maximum numbers allowable. Changes to the eligibility thresholds by Medicare Part D plans might have acted as a barrier for increased MTM enrollment. Thus, CMS may need to identify alternative strategies to increase MTM enrollment in Medicare plans.     

Employer-Based Disease Management Programs in Cancer

The cancer disease management field took root in the early 1990s. Health plans in the US seeking to aggressively manage cancer reached out to entrepreneurial start-ups that had infused the general principles of managed care into cancer programs. More than two dozen health plans had adopted some form of cancer disease management by the end of the century. However, employers, witnessing the managed care backlash and experiencing difficulty recruiting an adequate pool of skilled labor during flush economic times, have abstained from aggressive management of their workforces’ cancer treatment.Employers, unlike health plans, pay for work loss associated with disability and absenteeism. Hence, the per capita cost of cancer to employers greatly exceeds that of health plans. As the US economy soured in 2000 and healthcare premiums grew at double-digit rates, employers began to abandon their previous reluctance in adopting disease-specific programs. Some employer initiatives to date are not fully-fledged cancer disease management programs; rather, pieces of such programs have been introduced. The return on investment achievable by implementing a comprehensive cancer disease management program, once known to employers and their consultants, will likely spur much greater adoption of such programs in the next 5 years.This review highlights piecemeal efforts where employers have adopted a form of cancer disease management. Attention is given to some of the employer costs associated with cancer, suggesting that greater awareness of the exposure and potential upside will likely result in more employers embracing fully-fledged cancer disease management.     

Ethical Considerations in Disease Management

Managed care, with its restrictions on patient and provider autonomy, has dominated the delivery of healthcare in the US over the last decade. The latest model of managed care has focused on disease management programs, which outline optimal cost-effective processes for care, built on evidence-based guidelines. Patients and providers seem to be more accepting of these programs than of the restrictive managed care practices, but ethical dilemmas remain for both patients and providers when participating in such programs. The basic ethical tenets of beneficence (to do good), autonomy (to make one’s own decisions) and non-maleficence (to do no harm), have been well accepted by the medical community. Under managed care these basic tenets have been challenged, with a notable impact on the principle of autonomy; patients lose their choices in selecting care providers, while healthcare providers face restrictions on what pharmaceutical agents they can prescribe and how to care for patients.Additionally, the changing nature of managing care has highlighted conflicts of interest between: patients and the providers of healthcare; patients and the implementers of health plans; and providers and health plans. Conflicts of interest between various parties involved in healthcare challenge the fundamentals of ethical principles, particularly autonomy and beneficence.Recently, there has been greater recognition of the ethical notion of social justice (including the competing concepts of distributive and contributive justice), in terms of the provision of healthcare, partly due to the development of concerns over the expense of, and access to, healthcare. Distributive justice reflects the broader societal concerns over the provision of scarce resources for all citizens, and argues for universal coverage schemes. The concept of contributive justice recognizes that principles of equity demand that we allocate commonly collective funds fairly to those who have contributed to the pool of funds; in the realm of healthcare in the US this is particularly relevant for those who have insurance coverage.Disease management programs offer great potential to improve healthcare. Programs that are developed with attention paid to the principles of beneficence and social justice as well as to concerns regarding patient and provider autonomy can limit conflicts of self-interest.     

Service use and costs for Medicare beneficiaries in risk-based HMOs and CMPs: some interim results from the National Medicare Competition Evaluation.

The Health Care Financing Administration (HCFA) initiated the Medicare Competition Demonstration in 1982 in anticipation of congressional intent to establish a national program. Interim results on the 1984 service use and cost experience of the health maintenance organizations (HMOs) and competitive medical plans (CMPs) participating in the demonstrations indicate that Medicare enrollees in the demonstration experienced a median of 1,951 hospital days per 1,000 person years, 57 per cent of the median of 3,432 days per 1,000 in the local markets from which the plans drew enrollment. Independent practice association (IPA) HMOs experienced higher hospital use rates than staff and group model HMOs. These comparisons are not adjusted for various risk factors, the absence of which were likely to favor the demonstration plans. Plans with lower hospital service use were federally qualified and had been operating for more than five years. The median total annual revenue per enrollee across all plans was $2,312, compared to median annual expenses per enrollee of $2,250. The distribution of median annual expenses per enrollee by major category of expense was: institutional expenses ($1,038/enrollee), medical expenses ($720/enrollee), supplemental services expenses ($154/enrollee), and administrative and other expenses ($295/enrollee). Future analysis, using beneficiary-level data, will examine the impact of the demonstration and the nature and extent of evident biased selection and will compare the quality of care in the demonstrations to that in the fee-for-service sector.     

Risk-adjusted Medicare capitation rates using ambulatory and inpatient diagnoses

Researchers at The Johns Hopkins University (JHU) developed two new diagnosis-oriented methodologies for setting risk adjusted capitation rates for managed care plans contracting with Medicare. These adjusters predict the future medical expenditures of aged Medicare enrollees based on demographic factors and diagnostic information. The models use the Ambulatory Care Group (ACG) algorithm to categorize ambulatory diagnoses. Two alternative approaches for categorizing inpatient diagnoses were used. Lewin-VHI, Inc. evaluated the models using data from 624,000 randomly selected aged Medicare beneficiaries. The models predict expenditures far better than the Adjusted Average per Capita Cost (AAPCC) payment method. It is possible that risk adjusted capitation payments could encourage health plans to compete on the basis of efficiency and quality and not risk selection.     

The impact of health insurance on stockholding: A regression discontinuity approach

Economic theory predicts that a reduction in background risk should induce financial risk-taking, particularly for individuals with low stock market participation costs. Hence, health insurance coverage could affect financial risk-taking by offsetting health-related background risk. We use a regression discontinuity design to examine whether Medicare eligibility at age 65 increases stockholding in the US and find that it does so for those with college education, but not for their less-educated counterparts who face higher stock market participation costs. Our results are unlikely due to the reduction of medical expenses associated with Medicare coverage because the latter does not affect bondholding.     

Principal inpatient diagnostic cost group model for Medicare risk adjustment

The Balanced Budget Act (BBA) of 1997 required HCFA to implement health-status-based risk adjustment for Medicare capitation payments for managed care plans by January 1, 2000. In support of this mandate, HCFA has been collecting inpatient encounter data from health plans since 1997. These data include diagnoses and other information that can be used to identify chronic medical problems that contribute to higher costs, so that health plans can be paid more when they care for sicker patients. In this article, the authors describe the risk-adjustment model HCFA is implementing in the year 2000, known as the Principal Inpatient Diagnostic Cost Group (PIPDCG) model.     

Do Medicare Advantage plans select enrollees in higher margin clinical categories?

The CMS-HCC risk adjustment system for Medicare Advantage (MA) plans calculates weights, which are effectively relative prices, for beneficiaries with different observable characteristics. To do so it uses the relative amounts spent per beneficiary with those characteristics in Traditional Medicare (TM). For multiple reasons one might expect relative amounts in MA to differ from TM, thereby making some beneficiaries more profitable to treat than others. Much of the difference comes from differences in how TM and MA treat different diseases or diagnoses. Using data on actual medical spending from two MA-HMO plans, we show that the weights calculated from MA costs do indeed differ from those calculated using TM spending. One of the two plans (Plan 1) is more typical of MA-HMO plans in that it contracts with independent community providers, while the other (Plan 2) is vertically integrated with care delivery. We calculate margins, or average revenue/average cost, for Medicare beneficiaries in the two plans who have one of 48 different combinations of medical conditions. The two plans’ margins for these 48 conditions are correlated (r = 0.39, p < 0.01). Both plans have margins that are more positive for persons with conditions that are managed by primary care physicians and where medical management can be effective. Conversely they have lower margins for persons with conditions that tend to be treated by specialists with greater market power than primary care physicians and for acute conditions where little medical management is possible. The two plan's margins among beneficiaries with different observable characteristics vary over a range of 160 and 98 percentage points, respectively, and thus would appear to offer substantial incentive for selection by HCC. Nonetheless, we find no evidence of overrepresentation of beneficiaries in high margin HCC's in either plan. Nor, using the margins from Plan 1, the more typical plan, do we find evidence of overrepresentation of high margin HCC's in Medicare more generally. These results do not permit a conclusion on overall social efficiency, but we note that selection according to margin could be socially efficient. In addition, our findings suggest there are omitted interaction terms in the risk adjustment model that Medicare currently uses.