Extending transaction cost economics: towards a synthesised approach for analysing contracting in health care markets with experience from the Australian private sector

Financial risk allocation and provider incentives in hospital-insurer contracts in The Netherlands

In healthcare systems with a purchaser-provider split, contracts are an important tool to define the conditions for the provision of healthcare services. Financial risk allocation can be used in contracts as a mechanism to influence provider behavior and stimulate providers to provide efficient and high-quality care. In this paper, we provide new insights into financial risk allocation between insurers and hospitals in a changing contracting environment. We used unique nationwide data from 901 hospital-insurer contracts in The Netherlands over the years 2013, 2016, and 2018. Based on descriptive and regression analyses, we find that hospitals were exposed to more financial risk over time, although this increase was somewhat counteracted by an increasing use of risk-mitigating measures between 2016 and 2018. It is likely that this trend was heavily influenced by national cost control agreements. In addition, alternative payment models to incentivize value-based health care were rarely used and thus seemingly of lower priority, despite national policies being explicitly directed at this goal. Finally, our analysis shows that hospital and insurer market power were both negatively associated with financial risk for hospitals. This effect becomes stronger if both hospital and insurer have strong market power, which in this case may indicate a greater need to reduce (financial) uncertainties and to create more cooperative relationships.

Competition and Integration of Health Systems in the Post-COVID-19 New Normal: Results from a Cross-Sectional Survey in the United States (Preprint)

Background

How do health systems in the United States view the concept of merger and acquisition (M&A) in a post-COVID 19 “new normal”? How do new entrants to the market and incumbents influence horizontal and vertical integration of health systems? Traditionally, it has been argued that M&A activity is designed to reduce inequities in the market, shift toward value-based care, or enhance the number and quality of health care offerings in a given market. However, the recent history of M&A activity has yielded fewer noble results. As might be expected, the smaller the geographical region in which M&A activity is pursued, the higher the likelihood that monopolistic tendencies will result.

Objective

We focused on three types of competition perceptions, external environment uncertainty–related competition, technology disruption–driven competition, and customer service–driven competition, and two integration plans, vertical integration and horizontal integration. We examined (1) how health system characteristics help discern competition perceptions and integration decisions, and (2) how environment-, technology-, and service-driven competition aspects influence vertical and horizontal integration among US health systems in the post-COVID-19 new normal.

Methods

We used data for this study collected through a consultant from a robust group of health system chief executive officers (CEOs) across the United States from February to March 2021. Among the 625 CEOs, 135 (21.6%) responded to our survey. We considered competition and integration aspects from the literature and ratified them via expert consensus. We collected secondary data from the Agency for Healthcare Research and Quality (AHRQ) Compendium of the US Health Systems, leading to a matched data set for 124 health systems. We used inferential statistical comparisons to assess differences across health systems regarding competition and integration, and we used ordered logit estimations to relate competition and integration.

Results

Health systems generally have a high level of the four types of competition perceptions, with the greatest concern being technology disruption–driven competition rather than environment uncertainty–related competition and customer service–driven competition. The first set of estimation results showed that size, teaching status, revenue, and uncompensated care burden are the main contingent factors influencing the three competition perceptions. The second set of estimation results revealed the relationships between different competition perceptions and integration plans. For vertical integration, environment uncertainty–related competition had a significant positive influence (P<.001), while the influence of technology disruption–driven competition was significant but negative (P<.001). The influence of customer service–driven competition on vertical integration was not evident. For horizontal integration, the results were similar for environment uncertainty–related competition and technology disruption–driven competition; however, the significance of technology disruption–driven competition was weak (P=.05). The influence of customer service–driven competition in the combined model was significant and negative (P<.001).

Conclusions

Competition-driven integration has subtle influences across health systems. Environment uncertainty–related competition is a significant factor, with underlying contingent factors such as revenue concerns and leadership as the leading causes of integration plans. However, technology disruption may hinder integrations. Undoubtedly, small- and low-revenue health systems facing a high level of competition are likely to merge to navigate the health care business successfully. This trend should be a focus of policy to avoid monopolistic markets.

Orchestration versus bookkeeping: How stakeholder pressures drive a healthcare purchaser's institutional logics

Background

Healthcare purchasers such as health insurers and governmental bodies are expected to strategically manage chronic care chains. In doing so, purchasers can contribute to the goal of improving task division and collaboration between chronic care providers as has been recommended by numerous studies. However, healthcare purchasing research indicates that, in most countries, purchasers still struggle to fulfil a proactive, strategic approach. Consequently, a typical pattern occurs in which care improvement initiatives are instigated, but not transformed into regular care. By acknowledging that healthcare purchasers are embedded in a care chain of stakeholders who have different, sometimes conflicting, interests and, by taking an institutional logics lens, we seek to explain why achieving strategic purchasing and sustainable improvement is so elusive.

Method and findings

We present a longitudinal case study in which we follow a health insurer and care providers aiming to improve the care of patients with Chronic Obstructive Pulmonary Disease (COPD) in a region of the Netherlands. Taking a theoretical lens of institutional logics, our aim was to answer ‘how stakeholder pressures influence a purchaser’s use of institutional logics when pursuing the right care at the right place’. The insurer by default predominantly expressed a bookkeeper’s logic, reflecting a focus on controlling short-term care costs by managing individual providers. Over time, a contrasting orchestrator’s logic emerged in an attempt to achieve chain-wide improvement, striving for better health outcomes and lower long-term costs. We established five types of stakeholder pressure to explain the shift in logic adoption: relationship pressures, cost pressures, medical demands, public health demands and uncertainty. Linking the changes in logic over time with stakeholder pressures showed that, firstly, the different pressures interact in influencing the purchaser. Secondly, we saw that the lack of intra-organisational alignment affects how the purchaser deals with the different stakeholder pressures.

Conclusions

By highlighting the purchaser’s difficult position in the care chain and the consequences of their own internal responses, we now better understand why the intended orchestrator’s logic and thereby a strategic approach to purchasing chronic care proves unsustainable within the Dutch healthcare system of managed competition.

The influences of contract structure, contracting process, and service complexity on supplier performance

Purpose

To build a more comprehensive understanding of factors affecting the success of service contracting, the purpose of this paper is to investigate the influences of service complexity, contract structure and contracting process on the buyer-perceived supplier performance in business-to-business (B2B) services.

Design/methodology/approach

A research model is developed based on transaction cost economics and the research on service contracting. The model is tested by the survey data collected. Professional focus groups on LinkedIn are used to generate the list of potential respondents. The sample consists of 177 purchasing professionals from 25 countries.

Findings

The results indicate that three major contract dimensions and follow-up management practices positively influence buyer-perceived supplier performance. Furthermore, service complexity amplifies the effects of incentives designed in the contract and the buyer’s follow-up contract management on perceived supplier performance.

Research limitations/implications

The sample consists of respondents from 25 countries and provides good geographic coverage. However, the results should be generalized with caution because not all countries were represented equally.

Practical implications

The study suggests a framework and guidelines for purchasing managers to improve the design and management of service contracts to secure good performance from their supplier.

Originality/value

This paper contributes to understanding the performance-enhancing aspects of designing and monitoring service contracts in B2B contexts. It also adds to the knowledge of the role of service complexity in successful B2B service purchasing.

Provider payment to primary care physicians in China: background, challenges, and a reform framework

Aim: To provide a framework for provider payment reform for primary care physicians in China. Background: Primary health care is central to health system reform and payment incentives have significant consequences for the equity and efficiency of it. Methods: This paper describes the special payments system for public primary health institutions and the subsequent internal salary remuneration to primary care physicians in China. Based on an analysis of the major challenges, we suggest a reform framework including the pattern of governance, and payments to primary health institutions and employed physicians. Findings: A mixed system of input-based and output-based payments to institutions would probably be appropriate under a long-term and relational contract with the government. It was also advised that internal remuneration is provided by a basic salary plus a bonus based on performance, and an extra-regional allowance. We hope that the results can be used to shift the passive budgeting of in-house staff within the public primary health institutions toward strategic purchasing.

Selection of asset investment models by hospitals: examination of influencing factors, using Switzerland as an example

Hospitals are responsible for a remarkable part of the annual increase in healthcare expenditure. This article examines one of the major cost drivers, the expenditure for investment in hospital assets. The study, conducted in Switzerland, identifies factors that influence hospitals' investment decisions. A suggestion on how to categorize asset investment models is presented based on the life cycle of an asset, and its influencing factors defined based on transaction cost economics. The influence of five factors (human asset specificity, physical asset specificity, uncertainty, bargaining power, and privacy of ownership) on the selection of an asset investment model is examined using a two-step fuzzy-set Qualitative Comparative Analysis. The research shows that outsourcing-oriented asset investment models are particularly favored in the presence of two combinations of influencing factors: First, if technological uncertainty is high and both human asset specificity and bargaining power of a hospital are low. Second, if assets are very specific, technological uncertainty is high and there is a private hospital with low bargaining power, outsourcing-oriented asset investment models are favored too. Using Qualitative Comparative Analysis, it can be demonstrated that investment decisions of hospitals do not depend on isolated influencing factors but on a combination of factors. Copyright © 2016 John Wiley & Sons, Ltd.

Contracting with General Dental Services: a mixed-methods study on factors influencing responses to contracts in English general dental practice

Background

Independent contractor status of NHS general dental practitioners (GDPs) and general medical practitioners (GMPs) has meant that both groups have commercial as well as professional identities. Their relationship with the state is governed by a NHS contract, the terms of which have been the focus of much negotiation and struggle in recent years. Previous study of dental contracting has taken a classical economics perspective, viewing practitioners’ behaviour as a fully rational search for contract loopholes. We apply institutional theory to this context for the first time, where individuals’ behaviour is understood as being influenced by wider institutional forces such as growing consumer demands, commercial pressures and challenges to medical professionalism. Practitioners hold values and beliefs, and carry out routines and practices which are consistent with the field’s institutional logics. By identifying institutional logics in the dental practice organisational field, we expose where tensions exist, helping to explain why contracting appears as a continual cycle of reform and resistance.

Aims

To identify the factors which facilitate and hinder the use of contractual processes to manage and strategically develop General Dental Services, using a comparison with medical practice to highlight factors which are particular to NHS dental practice.

Methods

Following a systematic review of health-care contracting theory and interviews with stakeholders, we undertook case studies of 16 dental and six medical practices. Case study data collection involved interviews, observation and documentary evidence; 120 interviews were undertaken in all. We tested and refined our findings using a questionnaire to GDPs and further interviews with commissioners.

Results

We found that, for all three sets of actors (GDPs, GMPs, commissioners), multiple logics exist. These were interacting and sometimes in competition. We found an emergent logic of population health managerialism in dental practice, which is less compatible than the other dental practice logics of ownership responsibility, professional clinical values and entrepreneurialism. This was in contrast to medical practice, where we found a more ready acceptance of external accountability and notions of the delivery of ‘cost-effective’ care. Our quantitative work enabled us to refine and test our conceptualisations of dental practice logics. We identified that population health managerialism comprised both a logic of managerialism and a public goods logic, and that practitioners might be resistant to one and not the other. We also linked individual practitioners’ behaviour to wider institutional forces by showing that logics were predictive of responses to NHS dental contracts at the dental chair-side (the micro level), as well as predictive of approaches to wider contractual relationships with commissioners (the macro level).

Conclusions

Responses to contracts can be shaped by environmental forces and not just determined at the level of the individual. In NHS medical practice, goals are more closely aligned with commissioning goals than in general dental practice. The optimal contractual agreement between GDPs and commissioners, therefore, will be one which aims at the ‘satisfactory’ rather than the ‘ideal’; and a ‘successful’ NHS dental contract is likely to be one where neither party promotes its self-interest above the other. Future work on opportunism in health care should widen its focus beyond the self-interest of providers and look at the contribution of contextual factors such as the relationship between the government and professional bodies, the role of the media, and providers’ social and professional networks.

Funding

The National Institute for Health Research Health Services and Delivery Research programme.

Transaction cost analysis of in-clinic versus telehealth consultations for chronic pain: preliminary evidence for rapid and affordable access to interdisciplinary collaborative consultation

OBJECTIVES

With ever increasing mandates to reduce costs and increase the quality of pain management, health care institutions are faced with the challenge of adopting innovative technologies and shifting workflows to provide value-based care. Transaction cost economic analysis can provide comparative evaluation of the consequences of these changes in the delivery of care. The aim of this study was to establish proof-of-concept using transaction cost analysis to examine chronic pain management in-clinic and through telehealth.

METHODS

Participating health care providers were asked to identify and describe two comparable completed transactions for patients with chronic pain: one consultation between patient and specialist in-clinic and the other a telehealth presentation of a patient's case by the primary care provider to a team of pain medicine specialists. Each provider completed two on-site interviews. Focus was on the time, value of time, and labor costs per transaction. Number of steps, time, and costs for providers and patients were identified.

RESULTS

Forty-six discrete steps were taken for the in-clinic transaction, and 27 steps were taken for the telehealth transaction. Although similar in costs per patient ($332.89 in-clinic vs. $376.48 telehealth), the costs accrued over 153 business days in-clinic and 4 business days for telehealth. Time elapsed between referral and completion of initial consultation was 72 days in-clinic, 4 days for telehealth.

CONCLUSIONS

U.S. health care is moving toward the use of more technologies and practices, and the information provided by transaction cost analyses of care delivery for pain management will be important to determine actual cost savings and benefits.

Contracting private hospitals: experiences from Southeast and East Asia

In resource-scarce settings governments have increasingly looked at ways of engaging the private sector in achieving national health system goals. This study is a comparative analysis of institutional contracting for hospital services in three southeast and east Asian countries, namely Thailand, the Philippines and South Korea. In addition, the case of Singapore, where public hospitals are corporatized, is reviewed. Primary data were collected through in-depth-interviews and analysed under a triangulation approach. Institutional contracting is only used in three out of four countries. In these three countries, institutional contracting inter alia aims at increasing access to hospital services, although the scale of private hospital participation depends on contextual factors. Neither strategic provider selection mechanisms nor a preferred provider system is part of the institutional contracting models reviewed. In Thailand and the Philippines, performance-based rewards or sanctions have played a limited role so far and there is relatively little dialogue between contract parties, indicating that the contracting tool has not been used to the fullest extent possible and suggesting that capacity development especially regarding contract and relationship management is needed. Although there is virtually no information available about the cost of contracting, the findings of this study suggest that the potential of institutional contracting arrangements should be explored further to improve health system outcomes and thereby support countries in their quest for universal health coverage.

The use of standard contracts in the English National Health Service: a case study analysis

The use of contracts is vital to market transactions. The introduction of market reforms in health care in the U.K. and other developed countries twenty years ago meant greater use of contracts. In the U.K., health care contracting was widely researched in the 1990s. Yet, despite the changing policy context, the subject has attracted less interest in recent years. This paper seeks to fill a gap by reporting findings from a study of contracting in the English National Health Service (NHS) after the introduction of the national standard contract in 2007. By using economic and socio-legal theories and two case studies we examine the way in which the new contract was implemented in practice and the extent to which implementation conformed to policy intentions and to our theoretical predictions. Data were collected using non-participant observation of 36 contracting meetings, 24 semi-structured interviews, and analysis of documents. We found that despite efforts to introduce a more detailed ('complete') contract, in practice, purchasers and providers often reverted to a more relational style of contracting. Frequently reliance on the NHS hierarchy proved to be indispensable; in particular, formal dispute resolution was avoided and financial risk was re-allocated in compromises that sometimes ignored contractual provisions. Serious data deficiencies and shortages of skilled personnel still caused major difficulties. We conclude that contracting for health care continues to raise serious problems, which may be exacerbated by the impending transfer of responsibility to groups of general practitioners (GPs) who generally lack experience and expertise in large-scale, secondary care contracting.