Discussion
BRRY0503
Econ315-Week5-ch8-9.pptx
Health Econ 315 Week 5:
Managed Care (Ch 8)
The Physicians’ Services Market (Ch. 9)
Managed Care
What is managed care?
Any health plan that directs its enrollees to a panel of providers who have agreed to follow established guidelines to control utilization and cost.
Monitors and directs the use of health services in order to reduce costs
Attempts some form of control over both patient and provider sides of the market.
Types of Managed Care Organizations
Health Maintenance Organization (HMO)
Group model
Staff model
Network model
Independent practice association (IPA)
Preferred Provider Organizations (PPO)
More popular type of managed care
Point of Service Plans (POS)
Consumer Directed Health Plans (CDHP)
Over 99% of people are in managed care
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Table 8.1: Health Plan Coverage for Private Employers with Group Insurance (percentage by type of plan)
Theory of Managed Care Savings
Assumes that costs and spending affected by changing patient utilization & physicians’ practice styles, & introduction of new technology
Premium covers a prescribed set of medical benefits; deductibles & coinsurance charged
Provider side provisions: Selective contracting, Risk sharing arrangements, Utilization review
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Selective Contracting
Managed care limits the patient's choice of provider through the use of gatekeepers, closed panels, and preferred providers
Gatekeepers: primary care physicians, who must approve if the patient wants to see a specialist
Closed panels: available physicians limited
Preferred providers: patients who use providers not preferred pay a higher coinsurance rate
Managed care limits the patient's choice of provider through the use of gatekeepers, closed panels, and preferred providers
RISK-SHARING ARRANGEMENTS
Many managed care plans use prospective payment (capitation) – lump sum payments per enrollee, paid in advance to primary care physician to reduce utilization & cost
Figure 8.1: Typical Premium Allocation of a $500 Premium under a Capitated Contract
Utilization Review
More than 90% of health plans use some form of utilization review to control costs
Many managed care plans require second surgical opinions before surgery can be performed
Three mechanisms are used to control utilization:
Authorization review
Second opinion
Case management
Managed Care Strategies
The goal is to ensure the provision of medically necessary services in the appropriate setting at the appropriate levels and prices.
The results of these strategies are:
Restrict access to certain kinds of medical care
Redirect medical care delivery to less-expensive locations
Monitor the use of medical products, supplies, and services
Market Alternatives
Consumer-Directed Health Plans
For the market to work in medical care, individuals must have “skin in the game”
Innovative Delivery Concepts
Increase competition in health care delivery
Competition stimulate innovation to lower cost and improve quality (example: ACO)
Evidence of Managed Care Savings
Managed care offers employers savings over traditional indemnity plans
But difficult to classify plans according to their cost-saving features because of extensive combination of features
Research suggests that managed care plans attract a healthier group of enrollees than indemnity plans, but evidence is mixed
Difficult to tell how health differences affect utilization and cost
Table 8.2: Average Premiums for Single & Family Plans, 2012, 2016
Quality Differences Between Managed Care and Fee-for-Service Care
A meta study comparing quality of care found equal numbers of statistically significant positive and negative effects of managed care on quality
Four studies found significantly better quality in managed care; four found worse
Another study found lower levels of utilization for managed care plans
Some vulnerable subpopulations may have less favorable outcomes under managed care
Managed Care and its Public Image
Although there is a lack of evidence suggesting poor quality of care, the public image of managed care is poor; many have a negative HMO story to tell
One study suggests the delay of getting public research into print, so that it does not address current market conditions
Another cause may be the diversity of managed care arrangements
And among medical providers, managed care is unpopular
The Future of Managed Care
Depends on the Affordable Care Act, which encourages the development of the accountable care organization (ACO):
“an organization of health care providers that agrees to be accountable for the quality, cost and overall care of [a group]”
Physicians would have to use evidence-based protocols to treat patients, but few are willing to give up clinical autonomy
Patients must be more engaged in their treatment
Cost Saving Features of Managed Care
Managed care systems provide some or all of the following.
Provider networks – List of doctors you can go to
Capitation payments – insurance company pays up front fee per patient regardless of whether patient utilizes services
Utilization management – managed care only works with drs who agree to utilization guidelines : “try cheaper stuff first”
Use of gatekeepers – use of primary care physician for all treatment.
History of Managed Care
1920s Industrialist Kaiser organized one of the first managed care plans
Doctors worked on a fixed salary to provide medical care to Kaiser’s steel mill and shipyard workers. This is capitation (fixed fee for range of services).
Not used for cost-containment at the time but a way to provide rural CA workers access to medical care
1947 Kaiser opened plan to other groups
Not viewed as popular, only 4% of population under managed care by 1980.
History of Managed Care
1965 Medicare/Medicaid = Growing political concern for rising medical costs.
1973 Nixon provided subsidies to nonprofit groups to establish HMOs (Health Maintenance Organization).
Not enough to push US into major HMO use
Late 1980s, corporations started moving to HMOs to control costs as well.
Currently, about one fourth of the population on a Managed Care plan. Almost all of private sector insured individuals have some form of managed care.
Types of Managed Care
Health Maintenance Organizations (HMOs)
Preferred Provider Organizations (PPOs)
Point of Service Plans (POS)
High Deductible Healthcare Plans (HDHP)
HMOs
Strictest form of managed care
Enrolled are treated by a closed group of providers
Providers may either be
employees of HMO
contractually obligated to provide services to certain HMO group
Types of HMOs
Group model
Private corporation contracts with a large multi-specialty group practice to provide medical care to a certain group.
Staff model
Drs are employees of the HMO. Paid a fixed amount with possible bonus for performance measures.
Network Model
Contracts with several providers and hospitals to make a full range of services available.
Independent Practice Association (IPA)
Individual and small group practices contract with one or more HMOs to provide care to enrolled members.
PPOs
A network of providers who agree to provide medical services at discounted rates.
Why would doctors agree to do this?
Enrollees can seek care outside of network for increased deductibles and coinsurance rates (and no discounts)
POs
Similar to other managed care plans with a primary care physician “gatekeeper” to coordinate all health care decisions.
HDHP
Often still have network of providers with smaller coinsurance rates compared to outside network
Higher deductibles overall
Save for deductibles in tax free health savings accounts set up by employer
Confused?
There is a reason! Plans are starting to morph into one another:
Indemnity-type plans are incorporating managed care type methods to control costs
HMOs are offering out-of-plan options to increase flexibility.
Managed Care vs. Indemnity
Both use demand side cost sharing provisions
Deductibles
Coinsurance
Managed Care also uses provider side cost sharing provisions
Selection of providers
Cost-sharing arrangements
Practice guidelines/utilization reviews
Selection of Providers
Providers agree to plans in order to get access to customers.
Possible criteria for Dr selection:
Board certified/Prof accreditations
Medical liability requirements
Practice styles
Meet goals for cost-effective use of resources
Meet goals on patient satisfaction surveys
Direct Cost Sharing Arrangements
Reimbursement schemes aimed to shift some of the financial risk to physicians:
Capitation – Lump sum payment per enrollee paid in advance.
Some of up front fee kept by insurance company and only paid if physician meets certain reqs
Ordered hospital services
Specialty referrals
Prescription drugs
Direct Cost Sharing Arrangements
Bonuses for
% of children with timely vaccinations
% of women with timely cancer screenings
High patient satisfaction survey scores
Practice Guidelines & Utilization Review
Practice guidelines – encourages providers to evaluate the marginal benefit of prescribed care more thoroughly.
Utilization Review
Hospital admission approval
Second surgical opinions
Case manager coordinates hospital care for costly conditions
Empirical Results
Managed care does appear to reduce costs compared to traditional indemnity plans.
Main savings was reduction in hospitalization rates.
In terms of overall quality of care overall, the statistics between managed care and indemnity insurance appear inconclusive.
In terms of quality of care for the sickest of the population, managed care is worse than indemnity plans.
The Politics of Managed Care
Patients – Model too restrictive
Employers –Disgruntled employees
Doctors –Balking at dual role:
Agent of patient (associated concern with quality)
Agent of society (associated concern with costs)
Politicians:
Limiting patient choice loses votes
Increasing choices increases votes
Where Does this Leave Us?
Fee for service insurance in health care (for the general public) is seeing the end of the road but what is to replace it is uncertain.
Public distrust for government-run programs
Consumer driven health care – build on tradition of individual autonomy and cost-conscious consumers
Complementary medicine
Informed consent
Expanding use of Internet
Direct-to-consumer advertising
Will continue to increase in popularity
The Future Physician Shortage (1 of 2)
The ACA is expected to increase the number of Americans with insurance by 30 million over the next decade
Medical infrastructure (imaging facilities, hospitals) is expected to keep pace
But physician workforce shortage are expected to plague the system, especially in primary care and general surgery
Waiting times are already expanding
Medicaid expanded, but <50% of physicians accept Medicaid patients
The Future Physician Shortage (2 of 2)
2013–2014, Medicaid added ~14 million new enrollees, but <50% of physicians accept Medicaid patients
Aging baby boomers will increase Medicare rolls by 36%, while during the same period, one-third of physicians will reach retirement
Shortage could be addressed by increasing residency positions nationwide, but those are funded 75% by Medicare which lost $740 billion from its budget with the ACA
The Theory of Labor Markets
Input pricing
Derived from the demand for the final product and affected by prevailing conditions in the market
Demand for inputs
The input demand curve is the marginal revenue product curve; see Figure 9.1
Human capital investment
Investment in medical education
Rate of return to investment
Figure 9.1 Marginal Wage Revenue Product
The Market for Physicians’ Services
Between 1970 and 2013, the population of the U.S. increased about 50%
During same time, the number of active physicians increased by 175%
About 21% of current U.S. physicians graduated from foreign medical schools, and 23% fill current residencies
More U.S. citizens are attending foreign medical schools
Table 9.1 Active Physicians in the U.S.
Specialty and Geographic Distribution; Physician Compensation
In U.S. less than 40% of physicians in primary care specialties; goal to increase the number to 50%, like most other developed countries
Concern for declining number of physicians practicing in rural and inner-city areas
Increasing number of specialists are primary cost driver to health care system
Median income of primary care physicians in 2010 was $202,392, but for specialists, 75% higher at $356,885
Table 9.2 Median Compensation in Selected Specialties
Alternative Payment Practices
Physician payment was dominated by fee-for-service model, but now being tied to productivity metrics
One alternative: measure and reward amount of work performed rather than number of patients seen and procedures provided (relative value unit or RVU)
Every procedure assigned an RVU by CMS
By 2010, almost 2/3 of physicians received bonus based on RVUs
Pricing of Physicians' Services
Prior to common health insurance coverage, most patients paid physician directly
Physicians charged patients different prices based on their relative demand elastics
As insurance became popular, physicians’ fees limited to usual, customary and reasonable charge
Since 1992, Medicare fee schedule, largely followed by insurers
Table 9.3 Changes in Medicare Fees for Selected Physicians’ Services
Organization of Physicians’ Practices
Physicians in solo practice has steadily declined over last decade, so that about 1/3 are now in solo practice, while 50%+ are in groups of 3 or more
Group practices lower overhead cost, may increase range of services to include pharmacy, clinical lab, radiology, CT scan
Most notable: more than 2/3 of physician practices are owned by hospitals
Regional variations in surgery, other procedures
Models of Physician Behavior
The Physician as Monopolistic Competitor
Like the standard model of monopolistic competition, each providing a slightly different product or service, trying to differentiate their practices
The Physician as Imperfect Agent
Using the principal-agent model, the perfect (physician) agent will recommend only the treatment that a fully informed patient would demand, but physician is also the provider; dual role creates conflict of interest
Figure 9.4 Pricing and Output Decision of Physician in Monopolistic Competition
Influencing Physician Behavior
Two incentive regimes at work that interfere with one another:
Financial arrangement between payer and provider, designed to control moral hazard
Moral obligation between patient and provider to provide all necessary care
Health plans have designed incentives including capitation, withholdings, bonuses, utilization reviews, to influence and limit a physician’s independence
Do Physicians Respond to Incentives?
Financial incentives key in explaining lower levels of spending and utilization
RAND Study: physicians at risk for budget deficits had lower spending per enrollee, attributable to lower specialist referral costs
Welch: physicians used more services in treating patients in fee-for-service plans than prepaid plans
Melichar: physicians spend less time with their patients under capitated plans that noncapitated patients
The Market for Dental Services
Most dentists are general practitioners, 80% in solo practices
Dental education similar to medical with 2 years of classroom instruction and 2 years of supervised clinical experience
2015 average annual income, $177,130, but varies widely by state
Job outlook good; demand for dental services will grow as baby-boom generation ages (they have kept more of their teeth)
Table 9.5 Dentists in the United States
Physician Rate of Return
High salaries, but there are also high costs:
Direct schooling costs
Opportunity cost on not earning wages for 8+ years
Rate of return (RR) tells us whether or not the high doctor salaries are worth the upfront sacrifices.
RR = (revenue – costs ) / costs
Rate of Return on Education Investment
Primary Care Physicians: 15.9%
Medical Specialists: 20.7%
Attorneys: 25.4%
MBA’s: 29%
Lower returns in medicine:
higher training costs
more years of foregone income
resulting shorter payoff periods
US & Specialty Care
Viewed as a strength: Improves quality of care
% of doctors primary care physicians:
US: 33%
Most developed countries: 50 -70%
Why do new US doctors choose to practice specialty care?
Why is this a concern in the US?
Organization of Physician Practices
Larger practices can combine activities and spread administrative overhead over a larger number of patients. This is called economies of scale.
Benefits of moving to a group practice:
Reduces overhead costs: rent, malpractice premiums, utilities, admin staff, etc
Increases the range of services offered within a practice.
Patients benefit from group practice setting. Physician supply curve is increased due to cheaper cost per patient which means lower prices.
UNLESS the physician group forms monopoly power (then prices would increase from lack of competition).
Monopolistic Competition
Realistically, physicians are neither perfectly competitive or a monopoly. They are somewhere in the middle.
Physicians strive to differentiate themselves from others in order to attain more consumers and higher prices. Can you think of some differentiation tactics?
Principal-Agent Problem Revisited
The physician ideally would recommend only the treatment that a fully informed patient would demand
Conflicts of interest:
What is best for a particular patient may not be best for society’s cost containment goals.
What is best for the patient is not often clear
Demand inducement may occur with fee for service practices where physician's increased income is desired.
When physician financial risk sharing does occur, there is the risk of problematic actions such as “patient dumping”
Controlling Physician Behavior
Regulation – By law physician must act in the best interest of the patient.
Sharing financial risks – Capitation (fixed fee for all services) or reducing fee for service rates.
Clinical rules – Managed care plans establish guidelines about practice styles
Reform related to physician market
Improve PCP to Specialty gap by improving rate of return:
Subsidies to students agreeing to practice PCP in certain areas for a specified number of years.
Increase in Medicaid/Medicare payments for PCP services
Full coverage mandate of preventative services
Medicaid/care & private insurance
Trends in Nursing ~ PPACA Direct Impacts
Increased funding for graduate education for nurses.
Increased funding for education for nurses who plan to work in underserved areas.
Increased Medicare reimbursement rates for advanced practice nurses.
Creation of a midwife pilot program that will deliver Medicare reimbursements for nurse practitioners who have created or led “medical homes.”
Increased reimbursements for school-based clinics under Medicaid.
Future Trends In Nursing
Possible cuts in nursing roles in hospital or specialist settings.
Increase in nursing roles in PCP & preventative settings.
“decision-makers are beginning to realize that nurse-managed clinics are at the forefront of providing care to vulnerable populations” Jamie Ware, National Nursing Centers Consortium
Aging Population will further increase nursing shortage
Older nurses retiring (large percentage of nurses)
Increased demand for medical care (and nursing positions)
Same dilemma in physician market
The Market for Nursing Services
Nursing services provided by different occupational groups, registered nurses (RNs) and licensed practical nurses (LPNs)
Efforts to curb the growth of health care spending likely to significantly affect market for nursing services
Hospitals will use more nursing aids for low-skill, routine care
Demand for advanced-practice nurses will rise
Table 9.4 RNs in the United States
