An evaluation of Medicaid selective contracting in California

Medicare Advantage Enrollees More Likely To Enter Lower-Quality Nursing Homes Compared To Fee-For-Service Enrollees

Unlike fee-for-service (FFS) Medicare, most Medicare Advantage (MA) plans have a preferred network of care providers that serve most of a plan's enrollees. Little is known about how the quality of care MA enrollees receive differs from that of FFS Medicare enrollees. This article evaluates the differences in the quality of skilled nursing facilities (SNFs) that Medicare Advantage and FFS beneficiaries entered in the period 2012-14. After we controlled for patients' clinical, demographic, and residential neighborhood effects, we found that FFS Medicare patients have substantially higher probabilities of entering higher-quality SNFs (those rated four or five stars by Nursing Home Compare) and those with lower readmission rates, compared to MA enrollees. The difference between MA and FFS Medicare SNF selections was less for enrollees in higher-quality MA plans than those in lower-quality plans, but Medicare Advantage still guided patients to lower-quality facilities.

Has Price Competition Changed Hospital Revenues and Expenses in New York?

This study analyzes the factors that influenced hospital expenses and revenues prior to and following the enactment of the New York State Health Care Reform Act of 1996 (HCRA)—the period from 1994–1999. HCRA was expected to encourage price competition which in turn was anticipated to lower hospital revenues and expenses. We measured the differential effects on hospital revenues and expenses in markets with varying degrees of competition. We also measured the relationship between hospital revenues and expenses and the increased concentration resulting from the formation of local hospital systems. We found that revenues and expenses both grew more slowly for hospitals located in more competitive markets; hospital systems that increased concentration tended to have higher revenues. In the short run at least, price competition induced by HCRA did constrain both hospital expense and revenue growth, although the increase in hospital mergers countered this trend.

Effect of Organizational and Environmental Factors on Service Differentiation Strategy of Integrated Healthcare Networks

During the past decade, the missions/goals of medical providers of healthcare services in the United States have shifted — from emphasizing individual, independent illness treatments to focusing on the continuum of care, population-based wellness, and providing the appropriate care in the most efficient way. Integrated healthcare networks (IHNs) — or integrated healthcare delivery systems — have been focusing heavily on their level of various partnership integration (i.e. service differentiation strategy) in order to offer a full continuum of care. The aim of this study, using the individual IHN as the unit of analysis, was to identify organizational and environmental factors that influence IHN administrators to focus on their service differentiation of market lines, including the establishment of third-party payers' contracts, the affiliation of managed-care organizations, and the alliances of various nonhospital medical providers, to provide a continuum of care. The study findings show that tax status of an IHN, its age, and market competition affect its service differentiation strategy in the provision of a full continuum of care.

Operational and contextual drivers of hospital costs

PURPOSE

The purpose of this paper is to examine empirically how operational performance and contextual factors contribute to differences in overall patient care costs across different hospitals.

DESIGN/METHODOLOGY/APPROACH

Administrative data are employed from a sample of hospitals in New York State to construct measures of contextual factors, operational performance, and cost per patient. Operational performance and cost variables are adjusted to account for case mix differences across hospitals. Hierarchical regression is used to analyze the effects of contextual and operational variables on cost performance.

FINDINGS

Increased length of stay, increased patient volume, and educational mission were associated with higher cost per patient. Mortality performance was associated with lower cost per patient. However, it was not found that location, size, or ownership status had a significant relationship with cost performance.

PRACTICAL IMPLICATIONS

This paper identifies several significant relationships between contextual and operational variables and hospital costs. From a managerial perspective, these findings highlight the fact that some drivers of cost in hospitals are under the control of managers. One of the primary cost drivers in the study is length of stay, which implies that there is significant room for improvement in healthcare performance through a focus on operational excellence.

ORIGINALITY/VALUE

For researchers, the present study highlights the relative importance of operational versus contextual factors, with respect to cost performance in hospitals. The results of this study also provide direction for additional research into the role operational performance might play in determining the overall organizational performance in a hospital.

The effects of multi-hospital systems on hospital prices

US hospital prices are rising again after years of limited growth. We analyze trends in hospital prices during a period of significant price growth (1999-2003) to assess whether hospitals that are part of multi-hospital systems were able to increase their prices faster than non-system hospitals. We find hospitals that were members of multi-hospital systems were able to increase their prices substantially more than comparable non-systems hospitals (34% for large systems and 17% for small systems). Further, we find that the systems effect is not confined to hospitals that have other system member hospitals in their local markets. One possible explanation is that hospitals belonging to non-local multi-hospital systems have improved their bargaining position vis-à-vis health plans.

Hospital selective contracting without consumer choice: what can we learn from Medi-Cal?

In the selective contracting era, consumer choice has generally been absent in most state Medicaid programs, including California's (called Medi-Cal). In a setting where beneficiary exit is not a threat, a large payer may have both the incentives and the ability to exercise undue market power, potentially exposing an already vulnerable population to further harm. The analyses presented here of Medi-Cal contracting data, however, do not yield compelling evidence in favor of the undue market power hypothesis. Instead, hospital competition appears to explain with greater consistency why certain hospitals choose to contract with Medi-Cal while others do not, the trends in inpatient prices paid by Medi-Cal over time, and the effect of price competition on service cutbacks, such as emergency room closures.

Market restructuring and pricing in the hospital industry

This paper examines the diagnosis related group-level (DRG) price effects of recent hospital mergers and acquisitions that occurred in Ohio and California. Empirical results indicate that hospital mergers and acquisitions increase prices at the DRG level. Further, price increases are greater in DRGs where the merging hospitals gained substantial market share compared to DRGs where the merging hospitals did not gain significant market share. These results suggest that DRG specific market share plays an important role in a hospital's post-merger pricing strategy.

The changing effects of competition on non-profit and for-profit hospital pricing behavior

Has the nature of hospital competition changed from a medical arms race in which hospitals compete for patients by offering their doctors high quality services to a price war for the patients of payors? This paper uses time-series cross-sectional methods on California hospital discharge data from 1986-1994 to show the association of hospital prices with measures of market concentration changed steadily over this period, with prices now higher in less competitive areas, even for non-profit hospitals. Regression results are used to simulate the price impact of hypothetical hospital mergers.

Quality assessment in contracting for tertiary care services by HMOs: a case study of three markets

BACKGROUND

Few studies have examined the provision of tertiary care services by managed care organizations (MCOs). Moreover, little is known about the role of quality assessment and quality assurance mechanisms in the contracting process. Site visits were conducted in 1995 in three geographic areas to describe and evaluate the contracting processes for tertiary care services, especially neonatal intensive care and coronary artery bypass graft surgery, of health maintenance organizations (HMOs).

METHODS

Three market areas in the United States, each with differing levels of "maturity", as primarily defined in terms of managed care penetration, were selected for study. Interviews were conducted with HMO and hospital managers about the processes for identifying potential tertiary care hospitals and mechanisms for quality assessment and quality improvement (QI) that are considered in the contracting process.

FINDINGS

The most sophisticated contracting arrangements were found in the most mature market-where HMOs select hospitals for tertiary care services based on both the price and quality of services, with quality assessed through both objective and subjective data. Yet in all three markets, quality assessment was the least well-developed component of tertiary care contracting. Even in the mature market, we found inconsistent use of even validated quality or outcomes measures in hospital contracting.

CONCLUSION

The potential of MCOs to increase quality depends on their ability to identify high-quality hospitals and their willingness to direct enrollees to those hospitals. Yet inconsistent evidence was found that mechanisms for evaluating and rewarding quality are being fully adopted in the three markets studied.

Managed care for preventive services: a review of policy options

In summary, the managed care system we propose for preventive services is designed to limit the potential for overcare under FFS payment and for undercare under capitation and comprehensive fixed fees. It bases payment on the provision of a complete set of preventive services, thus limiting the tendency of physicians to provide only the relatively high-profit services, such as screening tests, while neglecting the lower-profit services, such as counseling. It also allows primary care providers to outsource selected services to lower-cost providers, such as laboratories, health educators, and counselors, and community-based health promotion programs, thus encouraging greater efficiency. In addition, the proposed system funds both primary and high-risk preventive case management to ensure that individuals receive preventive services appropriate to their age, sex, and risk factors. Finally, the proposed system monitors the use of preventive services, relying on physician reminders to stimulate the appropriate provision of preventive care and denying payment for unauthorized care. Existing research suggests that none of the individual strategies for managed care can be expected to achieve all of the goals of managing and promoting the appropriate use of preventive services as defined by the U.S. Preventive Services Task Force (1989). To be most effective, we conclude that the strategies need to be coordinated and integrated into the current health care delivery practices of HMOs, PPOs, and point-of-service plans. In addition, the strategies require additional provider training in preventive care. With this support, the proposed model has the potential to improve quality, control costs, and increase the appropriate use of preventive care. While many of the individual components of the proposed managed care model have been evaluated for preventive services, a great deal more research is needed to evaluate the effect of combining these elements into a coordinated and comprehensive approach to managing preventive care. Research is also needed on workable ways to invite people not currently receiving medical care into the health care system to receive preventive care. To inform policy development, the impact of the proposed managed care model--both on preventive services utilization for specific screening, immunization, and counseling services, and on total health care costs and patient health status outcomes--needs to be evaluated.

Hospitals and antitrust: defining markets, setting standards

The definition of geographic and product markets is a critical aspect of any antitrust analysis. This paper argues for a different approach to market definition in areas where insurance plans that contract selectively are a significant market presence. Such a proposed approach is described and some policy implications are drawn.

Border crossing for hospital care and its implications for the use of statewide data

A major concern of researchers using state data sets for population-based analyses and market share studies in the health care sector is the potential bias caused by 'border crossing'--patients receiving care out of state. By using the Health Care Financing Administration (HCFA) discharge abstract files for 1987 and 1988, we found that 'border crossing' is not a serious problem for the two large states we examined. Only 4.4% of New York patients and 2.15% of California patients received care out of state. At the county and zip code level, 'border crossing' is more frequent but tends to be concentrated in areas adjacent to other states. Even excluding all zips with more than 10% of patients crossing the 'border' results in a small loss of patients (2.2% for New York and 1.0% for California).

Paying for efficiency: what price the quality of hospital care?

Economic recession prompts governments and health service ministers to seek increased efficiency in the production of hospital services in order to reconcile increasing demands with scarce resources. As one approach to the problem, the National Health Strategy is recommending pilot schemes, similar to those which have been introduced in both the United Kingdom and the Netherlands, which involve the separation of purchaser from the provider of hospital services. It is argued that such separation, with the introduction of competition between providers of hospital services for contracts placed by publicly funded Area Health Boards, will increase efficiency and accountability in the use of resources. However, this argument ignores the hospital management's ability to keep costs down by altering the quality of hospital care in ways which are difficult to monitor by purchasing agencies. The article considers the effects the introduction of managed competition is likely to have on the quality of hospital services. The outcome is uncertain and competition may improve some dimensions of quality while jeopardizing others. If managed competition is tried in Australia, the opportunity should also be taken to examine its impact on the quality and outcomes of hospital care.

Competitive bidding for health insurance contracts

The determination of the payment or premium to be paid to the insurer by a large purchaser of care must accurately represent the risk of the enrolled persons. One approach is a risk-adjusted payment established by a mathematical formula, which estimates the effect of many variables on total care costs, and for different groups of persons determine an average cost. This method has several problems, and an alternative is competitive bidding. Market forces pressure providers to offer the lowest possible bids while attempting to remain fiscally viable and provide high-quality services. Research from the U.S. demonstrates that competitive contracting effectively lowered the costs of health care for those sectors of the health care system that used this strategy. Bidding by area gave far more equitable results than could have been obtained with a state-wide system with crude adjustments for each area. It is an alternative which can create strong incentives for innovation and cost-containment, and at the same time allows insurers to take into account local variation in supply and demand of care. As a potential alternative to a regulatory system, competitive bidding should be considered for regional experimentation in health insurer payment.

Note. Evaluating exclusionary interventions

In evaluation research, some interventions are designed to affect both the subjects that receive the intervention and those that do not. Preferred provider organizations (PPOs) are an example, because if they are successful, PPOs will direct patients away from non-preferred providers towards preferred providers. When the intervention affects all subjects, the excluded group cannot serve as a control group if one wishes to estimate the experience of subjects in the absence of the intervention. That estimate must come from subjects completely unaffected by the treatment.