"Carving Out" Conditions from Global Capitation Rates: Protecting High-Cost Patients, Physicians, and Health Plans in a Managed Care Environment

The purposes of this study were (1) to develop a method for identifying individuals with high-cost medical conditions, (2) to determine the percentage of healthcare spending they represent, and (3) to explore policy implications of "carving out" their care from managed care capitation. Annual payments over a 2-year period to enrollees of three health plans-a traditional fee-for-service plan, a moderate-sized managed care organization, and a state Medicaid program-were determined by using a cross-sectional analysis of insurance claims data. The main outcome measures were the number of enrollees with total annual payments in excess of $25,000 and the contribution of these high-cost enrollees to each health plan's total costs. Forty-one groups of diagnosis and procedure codes representing a combination of acute and chronic conditions were included on the list of carve-out conditions. Pulmonary insufficiency and respiratory failure together accounted for the largest number of high-cost individuals in each health plan. Solid organ and bone marrow transplants, AIDS, and most malignancies that required high-dose chemotherapy were also important. The carve-out list identified more than one third of high-cost individuals enrolled in the Medicaid program, approximately 20% of high-cost managed care enrollees, and 10% of high-cost fee-for-service enrollees. These data confirm that it is possible to identify high-cost individuals in health plans by using a carve-out list. Carving out high-cost patients from capitation risk arrangements may protect patients, physicians, and managed care organizations.