Hospital adaptation to risk-bearing: managerial implications of changes in purchaser-provider contracting.

A number of countries have adopted contracting reforms in which hospitals are placed at financial risk. This risk has stimulated a number of adaptive strategies to achieve organizational success. This paper presents a model of six forms of contracting relationships and reviews the adaptation strategies observed in three health systems: the USA, England and the Netherlands. These strategies include service diversification, improved management information systems, the employment of marketing and contract managers, the use of clinical pathways, case management and concurrent/retrospective review of hospital stays, quality management and quality assurance programs, pre-admission authorization, discharge planning, and physician profiling and participation in management. These adaptive strategies have three implications for managers: increased 'partnering', with purchasers, collaboration with medical staff, and assumption of managed care roles. Two groups of institutions are at risk from the changes in hospital contracting: university teaching hospitals and inner-city hospitals serving socially deprived populations. The paper ends with implications for the education of hospital managers and research on hospital management and adaptation to contracting.

Management without frontiers: health system convergence leads to health care management convergence.

Health care managers and policymakers throughout the industrialized world are faced with a variety of new challenges at the same time that traditional constraints on action are becoming ever more restrictive. These pressures have stimulated a variety of health care reforms involving four different strategies for change: cost-containment efforts, quality and administrative efficiency improvements, cost-shifting efforts, and the adoption of market-related concepts from the private sector. These changes are leading to convergence among health systems, as seen by the reforms underway in the Netherlands, Germany, and the English component of the United Kingdom's National Health Service. This in turn will create convergence in the problems and issues faced by health care managers. Issues such as hospital contracting, managed mental health care, primary care gatekeeping, and four others are explored to illustrate how American managers can learn from the experiences of colleagues in other industrialized nations. A final section identifies common themes for health care executives in this period of global convergence.

Professional autonomy and managed care in Dutch health centres: stakeholders' perceptions of a strategic option.

The on-going reforms of the Dutch health care systems call for the introduction of managed care elements. Health centres in the Netherlands already bear some resemblance to health maintenance organizations in the USA. However, managed care challenges provider autonomy, and the strategic development of managed care plans may be hampered by providers' perceptions. We draw a distinction between managed care within an insurance arrangement and managed care as a package of methods. Both options are evaluated as suitable for Dutch health centres, though with differences in terms of strategic logic and cultural fit. Lastly, some general conditions are formulated that should be considered before care management processes can be implemented. These include: specify clear objectives for introduction of managed care; strengthen corporate culture; develop internal motivation for change; develop a practice criterion with health centre professionals; reduce workloads in order to provide development time; and, promote better cooperation between general practitioners and specialists.

Competitive bidding for health insurance contracts.

The determination of the payment or premium to be paid to the insurer by a large purchaser of care must accurately represent the risk of the enrolled persons. One approach is a risk-adjusted payment established by a mathematical formula, which estimates the effect of many variables on total care costs, and for different groups of persons determine an average cost. This method has several problems, and an alternative is competitive bidding. Market forces pressure providers to offer the lowest possible bids while attempting to remain fiscally viable and provide high-quality services. Research from the U.S. demonstrates that competitive contracting effectively lowered the costs of health care for those sectors of the health care system that used this strategy. Bidding by area gave far more equitable results than could have been obtained with a state-wide system with crude adjustments for each area. It is an alternative which can create strong incentives for innovation and cost-containment, and at the same time allows insurers to take into account local variation in supply and demand of care. As a potential alternative to a regulatory system, competitive bidding should be considered for regional experimentation in health insurer payment.

Public perceptions of health care problems. An analysis from Arizona.

Public perception of 17 health problems was assessed by telephone and in-person interviews in Arizona. Drug abuse (64.7%), the costs of health care (62.8%), and drunk driving (60.6%) were considered the most serious health care problems. Elderly and rural residents tended to view drug abuse, drunk driving, teenage pregnancy, and economic aspects of health care as less serious than did the younger and urban respondents, while the poor thought these problems were more serious. Respondents in this survey were less concerned with the lack of specific clinical services for high-risk groups--the old and frail, pregnant women, people with the acquired immunodeficiency syndrome, suicidal teenagers, and abused children.

Health insurance values and implementation in The Netherlands and the Federal Republic of Germany. An alternative path to universal coverage.

The health care systems in the Netherlands and the Federal Republic of Germany are based on a set of values that involve mutual obligations between private parties. These obligations are realized through systems incorporating private practice physicians, community and church- and municipality-affiliated hospitals, and nonprofit and for-profit insurers. The underlying values and implementation approaches in these systems provide an alternative to the adoption of a Canadian-style health insurance system. A discussion that focuses on "obligations" rather than "rights" may be a more useful approach for the design of reforms of the American health system in the 1990s. Such a discussion would focus on the mutual responsibility of all parties to create and maintain a universal private health care system.

Physician payment and cost-containment strategies in West Germany: suggestions for Medicare reform.

The West German health care system pays ambulatory care physicians on a fee-for-service basis but employs a national relative value scale and regional capitation-based revenue pools to achieve expenditure controls on total physician reimbursement. Physician-controlled organizations manage these pools and conduct utilization reviews on their own members. The capitation rates are determined by negotiations between the physician associations and health insurers. The West German government has been able to exert some influence on the outcome of these negotiations through a quasi-governmental advisory body. Aspects of this structure could be adopted by Medicare in order to determine conversion factors for resource-based relative value scales or to create expenditure control and incentive structures for Medicare-participating physicians.

Improving efficiency in the Dutch health care system: current innovations and future options.

In recent years a variety of efforts have been launched in the Netherlands that are explicitly concerned with more effective use of limited resources. Among these innovations are improved systems for the monitoring of utilization and cost of medical care providers, demonstrations of incentives for cost-effective care, the development of community care projects, and efforts to improve coordination of care. Further experimentation is proposed, using the selective adoption of techniques developed by limited provider plans (HMOs and PPOs) in the United States. While these efforts can provide specific examples for health care organizations in Europe, there are broader lessons for managers and policy makers from this review. These lessons are that managers must have the freedom and discretion to develop new ideas and approaches; successful change must involve new cooperative relationships among providers and financial bodies; and that there are many alternative configurations and modifications, contingent on the local environment. This leads to the final conclusion that local experimentation is essential to successful innovation.

Cost containment and physician payment methods in The Netherlands.

Cost containment in the Netherlands has been partly achieved by negotiated agreements between insurers and physician associations. The negotiating system in the Netherlands involves the determination of capitation and fee-for-service rates, based on negotiated norms for personal remuneration, practice costs, and practice size. Physician practice patterns are monitored in an effort to control volume. Selected aspects of the negotiating structure could be adopted by Medicare and HMOs to clarify issues in negotiations with physicians and to reimburse physicians more equitably. However, establishment of standardized fees and volume monitoring may not be as effective as global expenditure controls.

The prospects for prepaid long-term care: the Arizona Medicaid experiment.

Arizona is adding long-term care to its prepaid, capitated alternative to Medicaid. This article discusses the potential for this major cost-control experiment. Experience suggests that those able to quality for long-term care will fare better than the poor did in the previous system. However, limiting eligibility will be the primary means of controlling costs; significant price competition is not likely to develop. The bidding process will serve more to transfer risk to contract providers than to improve program efficiency. Potential cost savings will be more than offset by an increased identification of need.

The metamorphosis of health planning in the Netherlands and the USA.

The United States and the Netherlands are the focus for this comparative analysis of the evolutionary interaction between health planning and the political system, seen in the context of change in social and economic ideologies. While health planning in the USA started in 1946, it was the comprehensive health planning program in 1966 that created the form to be followed by Health Systems Agency effort in 1974: local, voluntary planning, coordinated by state agencies, supported by federal funding. Health planning in the Netherlands has moved through four distinct periods: a hospital construction period starting during the post-war recovery; a hospital regionalization period, from 1971 through the late 1970s; a transition period from the late 1970s to 1982, during which several planning approaches were considered; and, the current comprehensive health and social services planning period. Today, federal support for health planning in the US has been eliminated as part of the current de-regulatory, competitive health care strategy. Health planning in the US is now an institutional activity, with less focus on community needs. Advocated changes in the Dutch planning approach incorporate ideas similar to past approaches in the US; but, a failed approach in one nation may work in another, if the underlying cultural and organizational characteristics are sufficiently different.

Uncompensated care by hospitals or public insurance for the poor. Does it make a difference?

Results from two recent surveys of access to medical care, one nationwide and the other in Arizona, were analyzed to determine the consequences of reductions in Medicaid coverage for low-income Americans and the accompanying shift of responsibility for their health care to clinics and hospitals that provide uncompensated or subsidized care. The analysis indicated that in 1982, low-income persons received substantially less care from physicians if they resided in states without Medicaid programs or with only limited programs. In Arizona, the only state at the time without a Medicaid program, poor children saw physicians 40 percent less often, and poor rural residents saw physicians 22 percent less often, than poor residents of states with Medicaid programs; the proportion of poor Arizona residents refused care for financial reasons was almost double that in states with Medicaid programs. In addition, poor residents of states with the highest proportions of their low-income populations covered by Medicaid fared better than those in states with less extensive coverage. Moreover, poor elderly Americans were found to have comparable access to health care, regardless of where they lived, as a result of almost universal coverage under Medicare. Thus, this analysis suggests that the growing reliance on uncompensated care provided by hospitals and clinics may not be an effective substitute for public insurance and may adversely affect the health care received by the poor.

Competition in health care and the rural poor: an assessment from Arizona's competitive Medicaid experiment.

Market competition has been advocated as a possible solution to the rapidly increasing costs of Medicaid programs. However, there have been no major assessments of the impact of this approach on the rural poor. Past efforts have been located in urban areas; where existing HMOs were used to enroll the Medicaid population that elected to join the plans. In 1981 the Arizona Health Care Costs Containment System (AHCCCS, pronounced "access"), a statewide Medicaid experiment involving prepayment and enrollment in health plans, was created. Data from two state-wide, cross-sectional telephone surveys indicate that competitive Medicaid programs may be a feasible strategy in rural areas, but without innovative solutions for those ineligible for Medicaid, many of the rural poor will continue to have in adequate access to medical care.

An analysis of competitive bidding by providers for indigent medical care contracts.

This article develops a model of behavior in bidding for indigent medical care contracts in which bidders set bid prices to maximize their expected utility, conditional on estimates of variables which affect the payoff associated with winning or losing a contract. The hypotheses generated by this model are tested empirically using data from the first round of bidding in the Arizona indigent health care experiment. The behavior of bidding organizations in Arizona is found to be consistent in most respects with the predictions of the model. Bid prices appear to have been influenced by estimated costs and by expectations concerning the potential loss from not securing a contract, the initial wealth of the bidding organization, and the expected number of competitors in the bidding process.

Health care under AHCCCS: an examination of Arizona's alternative to Medicaid.

In late 1982, as an alternative to Medicaid, Arizona implemented a prepaid, competitively bid medical care program--the Arizona Health Care Cost Containment System (AHCCCS). Before its introduction, the poor had been cared for primarily by a network of county-supported centers. Impact of the AHCCCS initiative was examined by surveying comparable samples of poor persons in pre-AHCCCS 1982, and in 1984, after the program was in place. Both before and since AHCCCS, Arizona has had very restrictive eligibility requirements; to examine the program's impact on both eligible persons and the so-called "notch" group, the samples consist of individuals with family incomes within 200 percent of the program's financial criterion. Telephone surveys revealed that overall a lower proportion of the poor were enrolled in AHCCCS in 1984 than participated in county programs in 1982. However, access to care increased for AHCCCS enrollees in 1984, compared to county patients in 1982--and a greater proportion of 1984 AHCCCS enrollees than their 1982 counterparts in the county programs had at least one medical encounter in the 12 months preceding the surveys. For its enrolled population, then, AHCCCS may be a viable alternative to conventional Medicaid programs and to previous efforts at providing care at county sites. But the poor financially ineligible for AHCCCS are experiencing decreased opportunities for health services. The conclusions address the policy implications of the findings.