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DURHAM, N.C. -- Does Tennessee's TennCare, one of the first statewide experiments in universally enrolling Medicaid patients in managed care, really work? Researchers from Duke University Medical Center and Vanderbilt University are set to find out, and their results could influence other states looking to revamp medical service to the poor.

The Robert Wood Johnson Foundation has awarded nearly $500,000 to a team of economists and health policy experts to determine if TennCare is a good solution to an otherwise insurmountable problem.

In order to determine the effects of TennCare, the team will compare the health and well-being of hospitals, physicians and patients in Tennessee with those in North Carolina, where managed care is not so widely used.

"This will be the first hard look at whether this living experiment is reaching the patients it needs to and providing the quality care that it should," said Frank Sloan, who is leading the study for the Duke Center for Health Policy Research and Education.

"TennCare may ultimately offer objective lessons for all states that find themselves trying to provide health care with a limited chunk of federal money from block grants," he said.

"It is important to determine what the implications of managed care have been for the Medicaid program," said James F. Blumstein, a Vanderbilt law professor who is leading the Vanderbilt component of the project in his role as director of the Health Policy Center at the Vanderbilt Institute for Public Policy Studies.

"Is TennCare changing the traditional patterns of expensive care that have evolved in response to fee-for-service medicine paid for by third-party insurance? Is TennCare influencing how medicine in other settings is being provided," Blumstein asked.

Working with Sloan and Blumstein on the two-and-a-half-year project is Chris Conover, a health policy expert at Duke.

Tennessee, prompted by executive order of the governor and with the approval of the federal government, converted its entire Medicaid population and some of its uninsured population into a statewide program of managed care on Jan. 1, 1994. The program, called TennCare, was designed to resolve the state's Medicaid crisis by limiting the growth of program costs and providing expanded care to more people. Sloan said it was a response to a serious budgetary problem. Tennessee's population of eligible Medicaid patients had grown from about 400,000 in 1985 to nearly 1 million in 1993, with costs ultimately increasing about 20 percent a year, from $855 million in 1986 to $2.8 billion in 1993 -- almost 30 percent of the state's general fund budget.

Through TennCare, all Medicaid patients would enroll and the uninsured could enroll in managed care programs administered by private managed care organizations, which would offer a comprehensive benefit package determined by the state. The state, in turn, would pay managed care organizations a flat fee per member per month, called a capitation payment. In that way, the state's annual bill for health care would be fixed, and the risk of paying for patients' health care would be passed on to the managed care organizations.

But there may have been a number of bumps on the road to this kind of near universal insurance, Sloan said. Some patients have complained about such problems as delayed appointments, difficulties in accessing specialists, and inconvenient locations for TennCare physicians and participating hospitals. There also have been complaints by physicians and hospitals that they were in effect forced into the system and have lost money by assuming financial risk from the state.

On the other hand, said Conover, capitation may have stimulated providers in Tennessee to find innovative ways to deliver health care.

"They seem to be doing a lot more primary care now, and in some cases, they go to the neighborhoods to seek out those who need it. They are developing new ways to deliver care, and the preliminary results appear to be a dramatic reduction in hospital use and unnecessary visits to the emergency room," he said. "An important question is, are there socially beneficial outcomes that might outweigh some of the possibly negative aspects?"

"TennCare's promise is truly astounding -- an expanded benefit package to Medicaid enrollees, improved access to primary care, and improved continuity of care, a substantial increase in covered lives, all at no increase in projected public expenditures," Sloan said. "If the promises are fulfilled, the importance of TennCare can hardly be overemphasized. TennCare would surely represent a major social innovation, one worthy of widespread attention."

Traditionally, the health care industry has responded to constraints in expenditures not by changing approaches to the delivery of care but by seeking to shift costs to other payers, according to Blumstein. A fundamental question, he added, is whether TennCare providers are cost shifting or adapting in other ways.

To assess TennCare, the Duke and Vanderbilt researchers will address the following questions, among others:

Has TennCare improved efficiency, and if so, how has this been achieved?

Has it reduced quality and access to care of persons otherwise covered by Medicaid and the privately insured?

Has it imposed additional financial burdens on the non-TennCare population in terms of "cost-shifting" -- charging non-TennCare customers more to make up losses in seeing TennCare patients?

Are physicians and hospitals being illegally forced to treat TennCare patients? When TennCare began, Blue Cross of Tennessee adopted a "cram down" provision, meaning that any physician who had a contract with Blue Cross to treat state employees was forced to accept TennCare patients. Blumstein and Sloan will team up to determine the antitrust implications of this requirement.

What are TennCare's effects on hospitals and teaching institutions?

Are hospitals spending all their capital to maintain service, without saving for the future?

Are they being adequately compensated for teaching and research?

As part of the project, up to 10 hospitals from North Carolina and 10 from Tennessee will be compared and 2,400 personal interviews with patients from these hospitals will be conducted. The hospitals will be matched in size and scope and half of the Tennessee patients will have used these hospitals in 1993, before TennCare, and half in 1995. Additionally, 300 physicians in Tennessee will be interviewed, a team of nurses will study patient records, and costs between hospitals and states will be compared.

To examine the legal implications of the program, Blumstein plans to review rules and regulations that pertain to TennCare's implementation, as well as statutes, regulations, contracts, administrative rulings, court decisions and law review articles that might be relevant to the system's operation. In some cases, it will be necessary to conduct informal interviews with government officials and consumers to establish how the system is being implemented.

The following areas, in addition to others to be identified during the course of the project, are likely to receive attention:

Whether providers at risk of financial loss are subject to the requirements imposed by the state on insurance companies or health maintenance organizations.

Whether federal rules regarding compensation for hospitals (the so-called Boren Amendment) apply to TennCare providers.

What sources of state funds expended for TennCare qualify for federal financial matching?

What accountability and legal constraints exist for the exercise of discretion by the Health Care Financing Administration, which has authority to grant or modify the Medicaid waivers needed to allow TennCare to function?

Whether federal anti-kickback rules apply to TennCare providers, who contract with managed care organizations.