Effects of Price Competition and Increases in Managed Care on Outcomes

Kevin Volpp, M.D., Ph.DR. Tamara Konetzka, Ph.D.

Julie Sochalski, Ph.D.Jingsan Zhu, M.B.A.

Funding support from Doris Duke Charitable Foundation and VA HSR&D

HMOs have grown rapidly throughout the United States

HMO Enrollment in United States

0102030405060708090

Millions

Policy Context

• California passed selective contracting legislation allowing price competition in 1983 – led to rapid growth of managed care

• Price competition reduces rate of increase in hospital costs, profit margins, services to uninsured

• Little is known about effects of competition on quality of care

Revenue per discharge increased more slowly in markets with greater price competition

6000

7500

9000

10500

12000

13500

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

low competition and low MCP high competition and high MCP

Source: Calculated from California Hospital Annual Financial Disclosure Reports

Important Policy Questions

• Did price competition worsen outcomes?• Managed care organizations have economies of

scale in shopping for better quality providers

• However, growth of managed care shrinks price-cost margins

• Does price or quality competition predominate? Are effects of increased managed care growth similar in more and less competitive hospital markets?

• Did outcomes worsen to larger degree for the uninsured?

Data used

• California’s Office of Statewide Health Planning and Development (OSHPD) hospital discharges linked to State death certificates 1991-2001.

• OSHPD financial data 1990-2001

• Sample: 1991 and 2001 patients with principal diagnosis of AMI, stroke, hip fracture, GI bleed• Short-term acute-care hospitals.

• Final sample size: 316,883 discharges from 507 hospitals

Calculation of hospital markets

• Fixed radius used to define hospital markets

• Hospital market concentration, managed care penetration calculated from discharge data

• Price Competition = interaction between hospital market concentration and growth of managed care.

• Compare main effect of hospital market concentration, effects of increased managed care penetration in more and less competitive markets

Empirical Approach

• Long difference patient-level linear probability models predicting 30-day all-location mortality

• Adjustments for:• Patient characteristics - age, gender, race, payor, Elixhauser

comorbidities

• Common intertemporal trends

• Hospital factors - hospital fixed effects

• Effects of hospital market concentration, increases in managed care in more and less competitive markets from 1991-2001

phthtzhtyhtxhttphthpht HHIxyearHHIMCPMCPHospitalYearrPatientchaDeath )()()Pr( 3210

30-day mortality rates (all 4 conditions) changed at similar rates in more and less

competitive markets

0.09

0.1

0.11

0.12

0.13

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

low competition and low MCP high competition and high MCP

Patients in more competitive hospital markets generally fare better

-0.7

-0.5

-0.3

-0.1

0.1

0.3

AMI Gi Bleed Stroke Hip Fx

percentage point

change in mortality

Insured

Uninsured

*p-value < 0.10 **p-value < 0.05 ***p-value <0.01

***

*** ***

Among insured, growth in managed care generally beneficial but less so in more

competitive markets

-0.7

-0.5

-0.3

-0.1

0.1

0.3

AMI Gi Bleed Stroke Hip FxPercentage point change in

mortality

Increases in MCP inlow comp areas

Increases in MCP inhigh comp areas

*** *

#

*p-value < 0.10 **p-value < 0.05 ***p-value <0.01

# p-value < 0.05 for difference between high/low competition

Among uninsured, effects of increases in managed care more ambiguous

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

AMI GI Bleed Stroke Hip FxPercentage

point change in mortality

Increases in MCP inlow comp areas

Increases in MCP inhigh comp areas

**p-value < 0.05 ***p-value <0.01

##p-value < 0.01 for difference between high/low competition

***

##

Conclusions

• Among the insured, increases in managed care penetration lowered mortality in less competitive markets but less beneficial in more competitive markets• Suggests quality competition dominates less competitive

hospital markets but price competition bigger factor in more competitive hospital markets

• Among the uninsured, effects are more ambiguous. No clear evidence that the uninsured fared worse

• Growth in managed care appears to have larger effect on mortality than hospital market concentration

Limitations

• Generalizability to other states, other measures of quality of care?

Policy Implications

• It appears that savings on hospital care in California have been achieved without worsening quality

• Price competition improves quality of care for patients in less competitive areas but patients in more competitive hospital markets fare relatively worse

• The key question is whether these findings hold true for other conditions

Positive and negative effects on AMI mortality were greatest from 1983-1991

-0.2

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0.2

1983-2001 1983-1991 1991-1997 1997-2001

Increases inMCP in lowcomp areasIncreases inMCP in highcomp areas

## ##

***

**

Sig. difference from 0: *p<.10, **p<.05, ***p<.01; Sig. difference high comp vs. low comp: #p<.10, ##p<.05

Findings for 1990s similar using 30-day all-location mortality