Post on 30-Dec-2015
description
Managed Care’s Price Bargaining with Hospitals
AcademyHealth Annual Research MeetingAcademyHealth Annual Research MeetingJune 3, 2007June 3, 2007
Vivian WuUniversity of Southern California and RAND
(1) Do MC plans get lower prices through (1) Do MC plans get lower prices through bargaining?bargaining?
(2) What are the determinants of MC plans’ (2) What are the determinants of MC plans’ bargaining power? bargaining power?
Main Research Questions:
(1) Do MC plans get lower prices through (1) Do MC plans get lower prices through bargaining?bargaining?
(2) What are the determinants of MC plans’ (2) What are the determinants of MC plans’ bargaining power? bargaining power?
Main Research Questions:
Yes
Plan Size, Patient channeling
Background – Managed Care Mechanism to reduce price: Mechanism to reduce price:
Selective Contracting (bargaining)Selective Contracting (bargaining) MC plans form selective networks and channel MC plans form selective networks and channel
patients into these providerspatients into these providers MC bargains with providers individually for volume MC bargains with providers individually for volume
discountsdiscounts
Mechanisms to reduce quantity:Mechanisms to reduce quantity: financial: capitationfinancial: capitation non-financial: utilization management, gate keepers, non-financial: utilization management, gate keepers,
guidelinesguidelines
Methodology:Observe Managed Care w/ Lower Prices
Per Diem Rate for a Hospital AdmissionPer Diem Rate for a Hospital Admission
FFSFFS $100$100
HMO 1HMO 1 $ 70$ 70
HMO 2HMO 2 $ 62$ 62
HMO 3HMO 3 $ 51$ 51
HMO 4HMO 4 $ 75$ 75
HMO 5HMO 5 $ 65$ 65
Q: Is the observed price difference related to plans’ different bargaining power?
Methodology:Three Hypotheses
Cost DifferenceCost Difference Case mix, use of lower cost/quality hospitalsCase mix, use of lower cost/quality hospitals
Hospitals’ 3Hospitals’ 3rdrd-degree Price Discrimination-degree Price Discrimination Elasticity - Ramsey pricing rule Elasticity - Ramsey pricing rule
Managed Care’s Price BargainingManaged Care’s Price Bargaining SizeSize Elasticity: ability to channel patientsElasticity: ability to channel patients Excess capacityExcess capacity
Methodology:Empirical Tests
Payer SizePayer Size ChannelingChanneling
AbilityAbility
Excess Excess
CapacityCapacity
H1: Cost DifferenceH1: Cost Difference
H2: Hospital’s Price H2: Hospital’s Price DiscriminationDiscrimination No Relation No Relation NegativeNegative No Relation No Relation
H3: Managed Care’s H3: Managed Care’s Price BargainingPrice Bargaining NegativeNegative NegativeNegative NegativeNegative
Data Group Insurance Commission claims data Group Insurance Commission claims data
Actual prices paid, diagnoses, patient demographics Actual prices paid, diagnoses, patient demographics July, 1993 to June, 2000July, 1993 to June, 2000
Mass Hospital Discharge dataMass Hospital Discharge data SizeSize ““Channeling” measureChanneling” measure
American Hospital AssociationAmerican Hospital Association Sample Sample
Boston, Worcester, and Springfield HRRsBoston, Worcester, and Springfield HRRs General Acute HospitalsGeneral Acute Hospitals
Dependent Variable = log(Per Diem Price)Dependent Variable = log(Per Diem Price)
Base Base †† Base + High Cost Base + High Cost †††† Base + Hosp FEBase + Hosp FE
PPOPPO -0.30*-0.30* -0.31*-0.31* -0.30*-0.30*
HPHCHPHC -0.38*-0.38* -0.37*-0.37* -0.36*-0.36*
TuftsTufts -0.28*-0.28* -0.28*-0.28* -0.26*-0.26*
PilgrimPilgrim -0.35*-0.35* -0.32*-0.32* -0.32*-0.32*
HCHPHCHP -0.49*-0.49* -0.52*-0.52* -0.52*-0.52*
Cen MassCen Mass -0.30*-0.30* -0.29*-0.29* -0.27*-0.27*
FallonFallon -0.34*-0.34* -0.35*-0.35* -0.31*-0.31*
OthersOthers -0.24*-0.24* -0.25*-0.25* -0.26*-0.26*
Adj R2 Adj R2 .52.52 .53.53 .54.54* Significant at = .05 level. † Base regression control for age, sex, income, DRG, market and year dummies. †† High cost variables include major teaching hospitals, hospitals having angioplasty or cath lab, open heart surgery facilities, and hospital beds, and ownership types.
Results: H1- Cost Difference
Dependent Variable = log(Per Diem Price)Dependent Variable = log(Per Diem Price)
25%25% 50%50% 75%75%
PPOPPO -0.23*-0.23* -0.24*-0.24* -0.31*-0.31*
HPHCHPHC -0.25*-0.25* -0.30*-0.30* -0.43*-0.43*
TuftsTufts -0.12*-0.12* -0.23*-0.23* -0.38*-0.38*
PilgrimPilgrim -0.22*-0.22* -0.28*-0.28* -0.39*-0.39*
HCHPHCHP -0.47*-0.47* -0.51*-0.51* -0.56*-0.56*
Cen MassCen Mass -0.21*-0.21* -0.29*-0.29* -0.41*-0.41*
FallonFallon -0.22*-0.22* -0.29*-0.29* -0.43*-0.43*
OthersOthers -0.13*-0.13* -0.25*-0.25* -0.36*-0.36*
*Significant at = .05 level.
**All controlled for age, sex, income, DRG, year, hospital and market dummies.
Results: H1- Cost Difference
Results Summary: H1- Cost Difference
Consistent discounts for all patientsConsistent discounts for all patients Discounts Discounts notnot from sending patients to from sending patients to
different set of hospitalsdifferent set of hospitals From different prices within the hospitals. From different prices within the hospitals.
=>=>R/O the cost difference hypothesisR/O the cost difference hypothesis
Methodology:Empirical Tests
Payer SizePayer Size ChannelingChanneling
AbilityAbility
Excess Excess
CapacityCapacity
H2: Hospital’s Price H2: Hospital’s Price DiscriminationDiscrimination No relation No relation NegativeNegative No relation No relation
H3: Managed Care’s H3: Managed Care’s Price BargainingPrice Bargaining NegativeNegative NegativeNegative NegativeNegative
Methodology: Empirical Model
Price Price ijktijkt = = α*α*sizesizekmt kmt + + β*β*channelchannelkmt kmt
+ + γ*excessγ*excessjt jt + + ΣΣaa δ*interactionsδ*interactionsaa
+ + **Case mixCase mixijktijkt + + ΣΣt t λλtt**YearYeartt
+ + ΣΣj j ρρjj**HospHospj j + + ΣΣm m mm*Market*Marketmm + + εεijktijkt
where where i – IP dayi i – IP dayi j – hospital jj – hospital j
k – plan kk – plan k m - marketm - market
t – year tt – year t
Methodology: Variable Definition Price Price
Per Diem pricePer Diem price Payer Size Payer Size
Inpatients days in the hospital’s market (year-1) Inpatients days in the hospital’s market (year-1) ChannelingChanneling
Difference between preferred vs. observed hospital Difference between preferred vs. observed hospital choices (year-1)choices (year-1)
Excess CapacityExcess Capacity Average daily census < 50%Average daily census < 50%
DifferenceDifference -10%-10% +35%+35% -5%-5% -10%-10% 0%0%
““Channeling” Channeling” IndexIndex 30%30% 30%30% 30%30% 30%30% 30%30%
Patient Distribution
Hosp 1Hosp 1 Hosp 2 Hosp 2 Hosp 3Hosp 3 Hosp 4Hosp 4 Hosp 5Hosp 5
HMO1 HMO1 predictedpredicted 10%10% 15%15% 30%30% 15%15% 10%10%
HMO 1HMO 1
observedobserved0%0% 50%50% 25%25% 5%5% 10%10%
Methodology: “Channeling” Dissimilarity Index
(1) Model a conditional hospital choice model(1) Model a conditional hospital choice model
UUijij = = z’z’ijij α α + + xxii’β’βjj + + εεijij
(2) Compute expected hospital choices(2) Compute expected hospital choices
exp(zexp(zij’α’α + + xxii’β’βjj))
jexp(zexp(zij’α’α + + xxii’β’βjj))
(2) Calculate channeling index = (2) Calculate channeling index = | S | Spp – S – Soo | |22
22
__________________prob(Yi=j | zprob(Yi=j | zij, xxi) =) =
Methodology: “Channeling” Dissimilarity Index
Empirical Results
Dependent Variable = log(Per Diem Price) Dependent Variable = log(Per Diem Price)
Size † -0.82 ** 0.96 **
Channel – I -0.001 0.0003
Excess Capacity 0.018 0.029
Size*channel --- -0.037**
Size* Excess -- -0.26
† Size in millions.
Empirical Results
Dependent Variable = log(Per Diem Price) Dependent Variable = log(Per Diem Price)
Size † -0.88 ** -0.64
Channel - II -0.004 * -0.0021
Excess Capacity 0.02 0.05
Size*channel --- -0.09
Size* Excess -- -0.27
† Size in millions.
Empirical Results
Dependent Variable = log(Per Diem Price) Dependent Variable = log(Per Diem Price)
Size † -1.0 ** -0.65 *
Channel – III -0.24 -0.21
Excess Capacity 0.02 0.06
Size*channel --- -9.6 **
Size* Excess -- -0.27
† Size in millions.
Empirical Results: Summary
Evidence support managed care engages in Evidence support managed care engages in price bargaining.price bargaining.
Determinants: Determinants: ““Size” is important –large plans can get Size” is important –large plans can get
lower prices.lower prices. ““Channeling” is also important; slightly Channeling” is also important; slightly
larger effect than size in determining larger effect than size in determining discounts. discounts.
Managed care can make hospital market Managed care can make hospital market more price competitivemore price competitive through exclusive network, or,through exclusive network, or, via channeling within the network via channeling within the network
Current models inadequate in describing Current models inadequate in describing health plan bargaining powerhealth plan bargaining power
Implications
Implications on MC mergersImplications on MC mergers little is known about these mergerslittle is known about these mergers my results suggest to be cautious my results suggest to be cautious
potential gains in hospital (input) market potential gains in hospital (input) market may be limitedmay be limited
potential losses in insurance (output) market potential losses in insurance (output) market may be large. may be large.
Policy Implications