When compared with their urban and suburban counterparts, veterans who live in a rural setting have worse health-related quality-of-life scores. Policymakers, within and outside the Veterans Health Administration, should anticipate greater health care demands from rural populations.

The authors examined health care coverage for Veterans' Health Administration (VHA) enrollees and how their reliance on VHA care varies by coverage, using the largest and most detailed survey of veterans using VHA services ever conducted. The results showed that a majority of veterans who use VHA services have alternative health care coverage and that most of them use both VHA and non-VHA health care. The findings have important implications for quality of care and coordination of care.

Objective. To investigate whether a performance-based contracting (PBC) system provides incentives for nonprofit providers of substance abuse treatment to select less severe clients into treatment. Data Sources. The Maine Addiction Treatment System (MATS) standardized admission and discharge data provided by the Maine Office of Substance Abuse (OSA) for fiscal years 1991-1995, provides demographic, substance abuse, and social functional information on clients of programs receiving public funding. Study Design. We focused on OSA clients (i.e., those patients whose treatment cost was covered by the funding from OSA) and Medicaid clients in outpatient programs. Clients were identified as being ''most severe'' or not. We compared the likelihood for OSA clients to be ''most severe'' before PBC and after PBC using Medicaid clients as the control. Multivariate regression analysis was employed to predict the marginal effect of PBC on the probability of OSA clients being most severe after controlling for other factors. Principal Findings. The percentage of OSA outpatient clients classified as most severe users dropped by 7 percent ( po 5 0.001) after the innovation of performancebased contracting, compared to the increase of 2 percent for Medicaid clients. The regression results also showed that PBC had a significantly negative marginal effect on the probability of OSA clients being most severe. Conclusions. Performance-based contracting gave providers of substance abuse treatment financial incentives to treat less severe OSA clients in order to improve their performance outcomes. Fewer OSA clients with the greatest severity were treated in outpatient programs with the implementation of PBC. These results suggest that regulators, or payers, should evaluate programs comprehensively taking this type of selection behavior into consideration.Key Words. Performance-based contracting system, selection, substance abuse treatment State and local governments are major sources of financing for substance abuse services. In 1997, 27 percent of total mental health and substance abuse spending was funded by state or local governments (Mark et al. 2000). Like other payers, governments need efficient forms of payment to offer providers 535 financial incentives to achieve cost-efficiency and to allow payers to monitor performance. Performance-based contracting (PBC) has been promoted by the Institute of Medicine (IOM) as a ''promising mechanism to manage and ensure the effectiveness of substance abuse services'' (Institute of Medicine 1990). Generally, performance-based contracting ties continuation of funding or the level of funding to certain treatment outcomes. Maine implemented a PBC system in fiscal year 1993. In this system, nonprofit providers (programs) of substance abuse treatment received budgets each year from the state government to finance the cost of treating clients who could not pay. Maine monitored and evaluated programs' performance to ''redirect funds, away from less efficient programs and toward programs which have pr...

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To mitigate selection triggered by capitation payments, risk-adjustment models bring capitation payments closer on average to individuals' expected expenditure. We examine the maximum potential profit that plans could hypothetically gain by using their own private information to select low-cost enrollees when payments are made using four commonly used risk adjustment models. Simulations using a privately insured sample suggest that risk selection profits remain substantial. The magnitude of potential profit varies according to the risk adjustment model and the private information plans can employ to identify profitable enrollees.