Classen_HealthEcon_Class18 - Results of Managed Care and...

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Unformatted text preview: Results of Managed Care and Results of Managed Care and Dynamic Moral Hazard Class 18 Loyola University Chicago Prof. Tim Classen March 2, 2011 Class Outline Effects of Managed Care Dynamic Moral Hazard (Glied article) Strategies of Managed Care Strategies of Managed Care Use bargaining power ­ requires ability to exclude providers. Where to locate facilities. Tendency to locate in areas where individuals are privately insured. Denial of Payment Selective contracting. But success also depends on substitutability of providers for each other. Ex: HMO can exclude a hospital, then replace it with another or drop this part of coverage. But will organization lose too many consumers from plan? Changes in Managed Care since mid­ Changes in Managed Care since mid­ 90’s In early and mid­1990s, Managed Care (HMOs) Consumers disliked restrictions on care, prompting large backlash. Tight labor market during the economic boom of the late 1990s forced employers to offer more generous health insurance benefits Insurers expanded provider networks (PPOs) and eased restrictions on care by eliminating or reducing gatekeeping and prior approvals MCOs shifted focus to services that are high­cost or at high risk for inappropriate use: outpatient surgery, plastic surgery, diagnostic imaging, chiropractic care and physical therapy. Plans are increasing patient cost­sharing for services that tend to be more discretionary and prone to overuse (reduce moral hazard) Limited patients' choice of physicians and hospitals Required prior approval for certain high­cost services Restricted physicians' clinical authority. HMO Advantages HMO Advantages Numerous studies have shown that medical care financed through HMOs costs 10–20% less than that under indemnity insurance. Most savings are due to two factors: For many covered individuals, HMOs also offer the additional benefits of lower monthly premiums, free or low­cost preventive care, and little or no deductibles. The ability to contract with providers for lower prices A substantial reduction in the number of hospital days per 1,000 enrollees. Results of Managed Care Results of Managed Care Evidence on Outcomes Stern et al 1989 – MDs in FFS practice ordered 50% more EKGs and 40% more X­rays compared to Docs in HMOS. Greenfield et al 1992 – patients using FFS in large group practice 27% more likely to be hospitalized than patients of same group paid by capitation. RAND HIS – Also find lower hospitalization among HMO group compared to FFS w/ C=0 What is big difficulty with comparing HMO to FFS insurance outcomes? Patients’ health? (Selection bias) Doctors’ preferences? Quality/intensity of treatment Were HMOs successful in Were HMOs successful in reducing rate of cost increase? In a comparison of communities that had substantial HMO enrollment vs. those that did not it appears yes. Measure is a reduction in use of hospital days (both # of admissions and Length Of Stay) but rate of increase is not very different. That is, there is a one time reduction in the base when HMOs enter market. Rate of adoption of new technology appears to be somewhat slower in communities with high concentration of HMOs. (Dynamic effect) Problem with studies – never can avoid issue of selection (who enrolls and where HMOs established – cream skimming by HMOs) Also have spillovers from changes in payments due to HMOs also affecting FFS costs U.S. Health Care Spending as % of GDP 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 19 60 19 63 19 66 19 69 19 72 19 75 19 78 19 81 19 84 19 87 19 90 19 93 19 96 19 99 20 02 20 05 20 08 16.5% in 2009 12% in 1990 8% in 1975 HC’s share of the US economy has tripled over last 50 years. We now spend $2.5 trillion each year on health care. Glied (2001) on Health Glied (2001) on Health Insurance and Market Failures Avg. Medical Expenses among top 1% of medical care users as % of average income has grown from 130% to 300% What is market failure in absence of health insurance? Low competition levels in insurance served as response to need for risk pooling in face of adverse selection High costs of care for unexpected events would not have coverage Market failures since Arrow Market failures since Arrow What have been potential market failures resulting from health insurance? Search for providers shifted from consumers to insurers Dynamic moral hazard Information asymmetries still exist How to pick among physician groups or hospital networks? Reduces dynamic moral hazard if managed care lowers tech investments Increased expenditures resulting from access to new technologies Raises demand for health insurance, while at the same time making it more costly Increases in coverage leads to more technological developments (not usually cost­saving) Glied on Dynamic Moral Hazard “Technological improvements in the nature and quality of health care have made access to care more important and have driven increases in the cost of care. Better quality and higher cost care have precipitated the expansion in the extent and scope of private health insurance coverage and thus led to increased moral hazard . . . the existence of health insurance encourages the development and dissemination of cost­increasing technologies. In the presence of insurance­induced moral hazard, technology developers and providers compete to attract patients by choosing technologies that improve the quality of care. There is little reason to develop or choose technologies that lower costs.” ...
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This note was uploaded on 04/14/2011 for the course ECON 329 taught by Professor Classen during the Spring '11 term at Loyola Chicago.

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