No-cost health care financing solutions are not feasible if access to care is to remain a priority

Access to care continues to be a major problem for over 40 million uninsured Americans. Increased competition and cost-consciousness in the health care environment are eroding the traditional "Robin Hood" system for financing and delivering care for the poor and uninsured without creating a new mechanism to ensure access to care. The response of most major players in the policy arena has been to search for a no-cost solution where there clearly is not one, warns Irene Fraser, Ph.D., of the Agency for Health Care Policy and Research, in a recent book chapter.

According to Dr. Fraser, the growing gap in our pluralistic health insurance system creates two access problems, one indirect and one direct. The indirect threat is that growth in the ranks of the uninsured and the resultant increase in the volume of uncompensated care are occurring at a time when changes in the medical care financing system are dismantling long-standing mechanisms for financing this care and threatening the viability of traditional "safety net" hospitals to continue to serve the poor. The direct threat is that those without health insurance are less likely to seek care at all.

The traditional "Robin Hood" mechanism for financing care to the uninsured—implicit cost shifts to private payers—presumes a certain level of economic irrationality or financial slippage in the system: that hospitals and other providers will be willing to care for people who do not pay, that public and private insurers and other payers will be willing to pay a little extra to help cover the bills of the uninsured, and that employees and employers will be willing to pay higher premium costs to help subsidize the care of workers with higher anticipated health care risks or larger families.

In the face of rapidly rising health care costs, public and private payers have been desperately seeking and finding ways to contain their expenditures. These same efforts are eroding the traditional financing system without creating a new mechanism to assure access. One grim scenario could be constant or declining public coverage, declining private coverage, and diminishing provider capacity or willingness to provide free care.

New developments since this book went to press provide some reason for guarded optimism that this worst case scenario can be averted at least for a while, according to Dr. Fraser. Recent passage of the State Child Health Insurance Program as part of the Balanced Budget Amendment provides hope that States will be able to extend insurance to as many as half of the Nation's uninsured children.

More details are in "Access to health care," by Dr. Fraser, in Health Politics and Policy, T.J. Litman and L.S. Robins, editors, Boston: Delmar Publishers, 1997, pp. 288-305. Reprints (AHCPR Publication No. 98-R003) are available from the AHCPR Publications Clearinghouse.

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Managed Care

More employers are offering health insurance, but fewer workers are taking it

Increasing numbers of workers are being offered health insurance by their employers, but more workers, especially those earning low wages, are turning it down, according to a study by economists at the Agency for Health Care Policy and Research. They found that 75 percent of U.S. workers were offered insurance last year, a slight increase from 1987 (72 percent). But the number of workers without employment-based health insurance who turned down offered coverage more than doubled over the past decade, from 2.6 million in 1987 to 6 million last year. Workers with low wages were more likely to reject coverage than those who earned more.

For workers earning less than $7 per hour, the percentage who took the coverage they had been offered decreased from 80 percent to 63 percent. In contrast, among workers earning more than $15 per hour, there was only a 5 percentage point decline, from 91 percent in 1987 to 86 percent in 1996. The researchers also found disproportionate declines in insurance acceptance among young workers 21 to 25 years of age (87 percent to 70 percent), and workers in the smallest establishments (83 percent to 74 percent).

The authors note that during this time period, insurance premiums rose by 90 percent. Moreover, workers are being asked increasingly to share the cost of these premiums. These changes may make insurance seem particularly unaffordable for poor workers, whose wages have stagnated in recent years, note Philip F. Cooper, Ph.D., and Barbara S. Schone, Ph.D., authors of the study. Their findings are based on analysis of data from the 1987 National Medical Expenditure Survey (NMES) and 1996 Medical Expenditure Panel Survey (MEPS) of employed persons aged 21 to 64 years.

More details are in "More offers, fewer takers for employment-based health insurance: 1987 and 1996," by Drs. Cooper and Schone, in the November 1997 Health Affairs 16(6), pp. 142-149. Reprints (AHCPR Publication No. 98-R008) are available from the AHCPR Publications Clearinghouse.

Price remains a significant factor in choosing or switching health insurance plans

Little is known about how individuals make choices among health plans available to them. However, price clearly remains a significant factor for choosing or switching health insurance plans, concludes a study supported in part by the Agency for Health Care Policy and Research (NRSA Training Grant T32 HS00053). This suggests that perhaps the most effective way to encourage individuals to change enrollment—for example, from traditional fee-for-service (FFS) coverage to health maintenance organization (HMO) coverage—is to offer price incentives. Less is known about how price interacts with other potentially important primary variables affecting plan choice, such as plan quality, convenience, extent of benefit coverage, and provider choice, according to the study.

The researchers reviewed the literature on health plan choice. Using a conceptual model of health plan choice, they analyzed the roles of primary variables (i.e., characteristics of the health plans themselves: price, quality, degree of provider choice, scope and breadth of benefits, and convenience) and secondary variables (characteristics of the individuals choosing the health plans, characteristics of the environment, or other externally determined variables).

Studies on employment-based health plan choice show that price clearly influences decisions. For instance, HMO enrollees in one study who faced premium contribution increases of $10 per month were about five times as likely to switch plans as those whose contribution remained constant. No studies directly examined the effect of providing consumers with information on plan quality. Health plans generally differ widely in the degree of flexibility offered to enrollees in choosing providers, which few studies have examined. One study does show that having close personal ties to a doctor decreases the probability of joining an HMO if it is necessary to switch providers. Consumers tend to value more benefits over fewer benefits when selecting health plans. For some enrollees, certain benefits, such as mental health coverage, are more important, while for others, maternity benefits may matter more. The importance of convenience, such as ease of getting an appointment, distance to providers, average waiting time, claim filing, etc., is not well understood.

See "Consumer health plan choice: Current knowledge and future directions," by Dennis P. Scanlon, Michael Chernew, Ph.D., and Judith R. Lave, Ph.D., in the Annual Review of Public Health 18, pp. 507-528, 1997.

HCUP Research Note presents statistics on the top 50 diagnoses and procedures in U.S. hospitals

A number of studies have demonstrated differences in access to care, hospitalization rates, the process of care, and outcomes of treatment among patients by insurance status. For example, patients with Medicaid as the primary payer or patients who are uninsured tend to:

• Have reduced access to hospital services.
• Be hospitalized for preventable conditions.
• Have shorter lengths of hospitalization or fewer hospital days.
• Have lower procedure rates.
• Experience poorer outcomes, such as higher mortality, poorer survival, and greater risk of injury from substandard care.

A recent Research Note published by the Agency for Health Care Policy and Research presents descriptive statistics according to insurance status for the top 50 diagnoses and top 50 procedures in U.S. hospitals, based on a nationwide administrative database from 1993. Results are presented for privately insured, Medicare, Medicaid, and self-pay patients; all other patients; and all patients combined. This information can be used as a starting point for more in-depth analyses aimed at assessing differences in the process of care and outcomes by insurance status.

The Research Note examines differences by insurance status for a wide range of conditions from a nationwide sample of inpatients. Statistics are presented for the following measures of interest:

• Number and percent of discharges.
• Percent female.
• Percent of discharges in five age categories—less than 15 years, 15 to 44 years, 45 to 64 years, 65 to 74 years, 75 years and over.
• Percent with major therapeutic procedures.
• Percent with major diagnostic procedures.
• Percent with no procedure or only minor procedures.
• Discharge status—routine, home health care, another acute care hospital, other facility (including long-term care), died in the hospital.
• Percent with in-hospital complications.
• Mean total charges (with standard error).
• Mean length of stay (with standard error).

This study employs data from the Nationwide Inpatient Sample, Release 2, a component of AHCPR's Healthcare Cost and Utilization Project (HCUP-3). The study sample consists of more than 6.5 million discharges from 913 hospitals in 17 States.

Copies of the report, "Descriptive Statistics by Insurance Status for Most Frequent Hospital Diagnoses and Procedures," Healthcare Cost and Utilization Project (HCUP-3), Research Note 5 (AHCPR Publication No. 97-0009) by Anne Elixhauser, Ph.D., Meg Johantgen, Ph.D., R.N., and Roxanne Andrews, Ph.D., are available from the AHCPR Publications Clearinghouse.

AHCPR-supported studies examine the impact of managed care on quality and cost of care

The first comprehensive look at the impact of managed care on quality and the cost of care is provided by recent studies supported by the Agency for Health Care Policy and Research and published in the November/December 1997 issue of the journal, Health Affairs (volume 16, number 6). These studies examine how current, incentive-driven market decisions made by multiple participants—hospitals, physicians, health plans, employers, employees, and purchasers—determine who gets health care, what kind and how much care is provided, who pays for it, and how much is paid.

The studies represent the initial findings from seven research projects and three papers supported by AHCPR beginning in late 1995. The studies, summarized here, were originally presented at a February 1997 conference cosponsored by AHCPR and Health Affairs. They investigate the impact of managed care and health care markets on quality and costs for consumers, physician practice and satisfaction, and overall trends in competition.

The following three studies and an accompanying commentary address the central question: How does the growth of managed care and health care markets affect quality and costs for consumers?

Escarce, J.J., Shea, J.A., and Chen, W., "Segmentation of hospital markets: Where do HMO enrollees get care?" pp. 181-192.

The quality of care provided to health maintenance organization (HMO) enrollees who are hospitalized may not be as good as it is for patients who are not enrolled in HMOs, suggests this study. For example, heart attack patients in commercial HMOs are more likely than commercially insured, non-HMO patients to be treated in hospitals with annual CABG volumes lower than 200. Hospitals with CABG volumes of 500 or more generally have the best outcomes for heart patients.

These findings add to other evidence that in many areas of the country, incentives for managed care plans to reduce costs may outweigh incentives to improve quality.

Connor, R.A., Feldman, R.D., Dowd, B.E., and Radcliff, T.A.,"Which types of hospital mergers save consumers money?" pp. 62-74.

Horizontal hospital mergers (when two hospitals merge into a single corporation), which allow economies of scale and eliminate duplication of services, save consumers money. Such mergers reduce hospital prices about 7 percent and double that amount in areas with higher penetration by HMOs. This suggests that there is greater pressure for merger-related price reductions in areas with greater managed care penetration, according to the authors of this study.

They analyzed changes in costs and prices from 1986 to 1994 for more than 3,500 U.S. general short-term hospitals, including 122 horizontal mergers. They found that merger-related price reductions were considerably less in market areas with higher market concentration levels. Merger-related price reductions in areas with higher penetration by HMOs were approximately twice those in areas with lower HMO penetration. Merger-related price reductions were greater for low-occupancy hospitals, nonteaching hospitals, nonsystem hospitals, similar-size hospitals, and hospitals with greater premerger service duplication.

The results of this study have significant implications for public policy, note the researchers. Overall, the results suggest that horizontal consolidation of hospital mergers can be beneficial. However, the research also provides justification for antitrust scrutiny of mergers in more consolidated areas, which may result in price increases instead of decreases.

Clement, J.P., McCue, M.J., Luke, R.D., and others,"Strategic hospital alliances: Impact on financial performance," pp. 193-203.

When two hospitals form a strategic hospital alliance (SHA) to compete with other local hospitals, hospital systems, and other providers, they achieve higher net revenues. However, despite higher net revenues, SHA members are not more effective at cost control. Nor do the higher net revenues result in higher cash flow, concludes this preliminary study. The researchers used data from urban hospitals and a national database of local SHAs to model hospital financial performance as a function of SHA membership and market factors.

For FY 1995, hospitals that were members of SHAs generated $4,202 more in cash flow per bed and $203 more net revenue per outpatient and discharge (adjusted for case mix) than non-SHA members. However, they also averaged $191 more in operating expenses per adjusted discharge. But, after controlling for market, environmental, and hospital characteristics, the differences in cash flow and expenses between SHA and non-SHA hospitals were not statistically significant.

Bailit, M.H., "A purchaser's view of health care market trends," pp. 85-88.

A decline in competition and few rewards for higher quality care threaten the health of the managed care marketplace, argues the author of this commentary. Virtually every supplier in the health care services marketplace is frenetically involved in some merger or acquisition activity in order to eliminate oversupply of certain services, eliminate competitors, and increase prices, according to the author. He cautions that if purchasers and consumers continue to make decisions about health plans that are devoid of quality-of-care considerations, health plans will continue to trade off quality for cost, choice of providers, and service.

The next two studies and commentary ask: How are changes in the market affecting physicians?

Simon, C.J., White, W.D., Gamliel, S., and Kletke, P.R., "The provision of primary care: Does managed care make a difference?" pp. 89-98.

Physicians who are involved in managed care plans are more apt to narrow their scope of practice than other physicians, according to this study. It shows that primary care physicians who did not have managed care contracts spent the least amount of time in primary care activities in 1995 (73 percent). Primary care physicians in practices with managed care contracts but without capitation contracts spent 75 percent of their time on primary care activities; those with capitation contracts devoted 80 percent of their time to providing primary care services.

There was also a significant relationship between managed care contracting and primary care involvement for specialists. Specialists without managed care contracts spent more time delivering primary care services (20 percent) than did specialists with managed care contracts. Those in practices with contracts but without capitation had the lowest level of involvement in primary care (6 percent of their work week). On the other hand, specialists in practices with capitated contracts reported a higher fraction of their time spent on primary care (13 percent).

Hadley, J., and Mitchell, J.M., "Effects of HMO penetration on physicians' work effort and satisfaction," pp. 99-111.

Physicians in high HMO penetration areas worked nearly 4 percent fewer hours per year, saw nearly 10 percent fewer patients per week, and were more apt to be dissatisfied with their current practices than physicians in areas with less HMO penetration, concludes this study. Physicians' dissatisfaction may be due to HMO-related erosion of their incomes as well as frustration with HMO incentives to cut corners in how they practice medicine, note the researchers. The study also found twice as large a reduction in patient visits to specialists compared with visits to generalists, which probably reflects the HMO's use of primary care physicians as gatekeepers as well as financial incentives to reduce use of specialists.

Colby, D.C., "Doctors and their discontents," pp. 112-114.

Despite dramatic changes in physicians' autonomy, medicine continues to be an attractive profession. Even though physicians' income growth in real terms is relatively flat, the economic returns on education still are very high, especially for specialists, according to the author of this commentary. He points out that applications to medical schools have been increasing since the late 1980s, so that there are now three applicants for every first-year medical school place.

The final three studies and commentary examine overall trends in competition.

Wholey, D.R., Christianson, J.B., Engberg, J., and Bryce, C., "HMO market structure and performance: 1985-1995," pp. 75-84.

These researchers take a comprehensive look at a decade of managed care data and find evidence confirming the widely held belief that hospital days are declining among HMO patients, while use of ambulatory care is up. Their analysis of InterStudy HMO Census data from 1985 to 1995 found that inpatient use was significantly higher in independent practice associations (IPAs), but there was no difference in ambulatory use between HMOs and IPAs. As HMO penetration increased and the number of HMOs increased, group-model HMOs had lower hospital use and greater ambulatory use. In contrast, use of both inpatient and ambulatory care decreased in IPAs, but only at high levels of penetration and when there were large numbers of competitors.

Burns, L.R., Bazzoli, G.J., Dynan, D., and Wholey, D.R., "Managed care, market stages, and integrated delivery systems: Is there a relationship?" pp. 204-218.

Prevailing models used for analyzing the evolution of the health care market seem better at producing a snapshot of markets rather than distinguishing sequential stages of development, conclude these authors. These models suggest that hospitals respond sequentially as HMO penetration in a market goes from less than 11 percent to 50 percent or more of the market. Hospitals gradually consolidate and form horizontally integrated systems to augment their bargaining power with payers. But analysis of national data for 1992-1995 showed that these markets on average did not change significantly during that time in terms of managed care activity or provider organization.

Sage, W.M., "Judge Posner's RFP: Antitrust law and managed care," pp. 44-61.

In this commentary, the author examines a recent landmark antitrust court decision between Blue Cross and Blue Shield United of Wisconsin and the Marshfield Clinic. In the case, the U.S. Court of Appeals, Seventh Circuit, found that the defendant clinic and its affiliated HMO had not unlawfully wielded their market power in violation of antitrust law. In the author's view, one of the more serious problems with this decision was that it contradicted the most recent policy statements issued by the Federal regulatory bodies responsible for antitrust oversight. The author of this article uses the case to illustrate the assumptions and gaps in understanding that can occur when courts are asked to evaluate the complex and rapidly changing health care industry without the benefit of sound empirical research. He asserts that the dearth of data on competition in the managed care market leads to theoretical guesses in our courts of law. He calls for health services researchers to produce reliable empirical data that can be used in the formulation, appropriate enforcement, and litigation of antitrust law.

Managed care produces profound changes in structure and leadership of primary care clinics

As mergers and acquisitions abound and health care becomes "big business," the resulting turmoil is profoundly affecting the leadership of primary care clinics and their ability to improve the everyday processes of care, concludes a study supported by the Agency for Health Care Policy and Research (HS08091). It is critical to provide local clinic leadership with greater management skills to maintain clinical quality of care in the midst of these changes, asserts Leif I. Solberg, M.D., of Group Health, Inc.

Dr. Solberg and his colleagues documented clinic changes and devised intervention strategies to help clinics implement desirable changes as part of a large randomized controlled trial, Improving Prevention through Organization, Vision, and Empowerment (IMPROVE). The trial involved recruitment of 44 primary care clinics (22 randomized to the intervention and 22 to the control group) that held contracts with one or both of the managed care plans sponsoring the project. The goal of the intervention was to use an external intermediary to build clinic leadership support for an intraclinic multidisciplinary continuous quality improvement (CQI) team; provide training in process improvement and prevention system development to the leaders and facilitators of clinic teams; and offer consultation, reinforcement, and opportunities for these teams to network and share their experiences with other clinics.

The researchers anticipated that the intervention clinics would be ready to implement a new prevention system within 6 to 8 months after training was initiated. However, after 12 months of the intervention, only 18 percent of the clinics were at this step in process improvement due to enormous external and internal changes in their environment that affected morale, time, or organizational structure. During the year preceding the interview, 64 percent of the clinics had undergone a merger, acquisition, or affiliation. Also, over 75 percent of these clinics had undergone an important systems change, such as conversion of computer systems, centralization of business functions, change in clinic manager or medical director, and addition or loss of physicians.

Details are in "Primary care, process improvement, and turmoil," by Sanne Magnan, M.D., Ph.D., Dr. Solberg, Katherine Giles, M.B.A., B.S.N., and others, in the October 1997 Journal of Ambulatory Care Management 20(4), pp. 32-38.

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