The structure of risk adjustment for private plans in Medicare.

Medicare bases its risk adjustment method for Medicare Advantage plan payment on the relative costs of treating various diagnoses in traditional Medicare. However, there are many reasons to doubt that the relative cost of treating different diagnoses is similar between Medicare Advantage plans and traditional Medicare, including the varying applicability of care management methods to different diagnoses and the varying degrees of market power among suppliers of services to plans. We use internal cost data from a large health plan to compare its cost of treating various diagnoses with Medicare's reimbursement. We find substantial variability across diagnoses, implying that the current risk adjustment system creates incentives for Medicare Advantage plans to favor beneficiaries with certain diagnoses, but find no consistent relationship between the costliness of the diagnosis and the difference between reimbursement and cost.

Effects of health savings account-eligible plans on utilization and expenditures.

OBJECTIVE: To assess the impact of a health savings account (HSA)-eligible plan on utilization and expenditures in an employer-sponsored Midwestern health plan which offered a traditional plan from 2003 through 2004 that was fully replaced by an HSA-eligible plan in 2005 and 2006. STUDY DESIGN: Retrospective pre-post design with a control group. METHODS: Medical and pharmacy claims of plan members younger than 65 years who were continuously enrolled throughout the 4-year study period were used to evaluate the impact of switching to the HSA-eligible plan. Expenditure and utilization measures were compared with those for a control group covered by employers in the same industry and geographic location, while controlling for patient characteristics. RESULTS: The HSA-eligible plan was associated with significantly lower total expenditures (-17.4%), fewer and less costly office visits (-13.6% and -20.3%, respectively), fewer emergency department (ED) visits (-20.1%), lower pharmacy expenditures (-29.2%), lower expenses per drug (-27.9%), a reduced likelihood of mammograms (odds ratio [OR] = 0.55, P <.05) and Papanicolaou tests (OR = 0.66, P <.05), and a borderline significant reduction in routine physical exams (OR = 0.76, P <.10). The HSA-eligible plan also was associated with increased outpatient facility expenditures (5.1%, P <.05). CONCLUSION: Employer-sponsored HSA-eligible plans appear to be associated with lower healthcare expenditures and/or utilization, particularly for office visits, ED visits, and pharmacy. However, they also may discourage preventive care, leading to increased long-term medical costs. Employers offering HSA-eligible plans should ensure that there are no financial barriers for preventive services.

Unhealthy competition: consequences of health plan choice in California Medicaid.

OBJECTIVES: We compared the quality of care received by managed care Medicaid beneficiaries in counties with a choice of health plans and counties with no choice. METHODS: This cross-sectional study among California Medicaid beneficiaries was conducted during 2002. We used a multivariate Poisson model to calculate adjusted rates of hospital admissions for ambulatory care-sensitive conditions by duration of plan enrollment. RESULTS: Among beneficiaries with continuous Medicaid coverage, the percentage with 12 months of continuous enrollment in a health plan was significantly lower in counties with a choice of plans than in counties with no choice (79.2% vs 95.2%; P < .001). Annual ambulatory care-sensitive admission rates adjusted for age, gender, and race/ethnicity were significantly higher among beneficiaries living in counties with a choice of plans (6.58 admissions per 1000 beneficiaries; 95% confidence interval [CI] = 6.57, 6.58) than among those in counties with no choice (6.27 per 1000; 95% CI = 6.27, 6.28). CONCLUSIONS: Potential benefits of health plan choice may be undermined by transaction costs of delayed enrollment, which may increase the probability of hospitalization for ambulatory care-sensitive conditions.

Taxing cadillac health plans may produce Chevy results.

It's often assumed that high-cost health insurance plans--sometimes called "Cadillac" plans--provide rich benefits to plan subscribers. Health reform provisions that treat these plans like luxuries may be misguided. Only 3.7 percent of variation in the cost of family coverage can be explained by benefit design (actuarial value). Benefit design plus plan type (HMO, PPO, POS, or high-deductible plans) explains 6.1 percent of this variation. Industry type and medical costs in the region also play a role. Most variation in premiums, however, remains largely unexplained.

The impact of physician-owned specialty orthopaedic hospitals on surgical volume and case complexity in competing hospitals.

Published studies of physician-owned specialty hospitals have typically examined the impact of these hospitals on disparities, quality, and utilization at a national level. Our objective was to examine the impact of newly opened physician-owned specialty orthopaedic hospitals on individual competing general hospitals. We used Medicare Part A administrative data to identify all physician-owned specialty orthopaedic hospitals performing total hip arthroplasty (THA) and total knee arthroplasty (TKA) between 1991 and 2005. We identified newly opened specialty hospitals in three representative markets (Durham, NC, Kansas City, and Oklahoma City) and assessed their impact on surgical volume and patient case complexity for the five competing general hospitals located closest to each specialty hospital. The average general hospital maintained THA and TKA volume following the opening of the specialty hospitals. The average general hospital also did not experience an increase in patient case complexity. Thus, based on these three markets, we found no clear evidence that entry of physician-owned specialty orthopaedic hospitals resulted in declines in THA or TKA volume or increases in patient case complexity for the average competing general hospital.

Early adverse drug event signal detection within population-based health networks using sequential methods: key methodologic considerations.

PURPOSE: Active surveillance of population-based health networks may improve the timeliness of detection of adverse events (AEs). Our objective was to expand our previous signal detection work by investigating the effect on signal detection of alternative study specifications. METHODS: We compared the signal detection performance under various study specifications using historical data from nine health plans involved in the HMO Research Network's Center for Education and Research on Therapeutics (CERT). Five drug-event pairs representing generally accepted associations with an AE and two pairs representing "negative controls" were analyzed. Alternative study specifications related to the definition of incident users and incident AEs were assessed and compared to our previous findings. RESULTS: Relaxing the incident AE exclusion criteria by (1) including members with prior outpatient diagnoses of interest and (2) halving (to 90 days) the time window specified to define incident exposure and diagnoses increased the number of members under surveillance and as a consequence increased the number of exposed days and diagnoses by about 10-20%. The alternative specifications tend to result in earlier signal detection by 10-16 months, a likely consequence of more exposures and events entering the analysis. CONCLUSIONS: This paper provides additional preliminary information related to conducting prospective safety monitoring using health plan data and sequential analytic methods. Our findings support continued investigation of using health plan data and sequential analytic methods as a potentially important contribution to active drug safety surveillance.

Early detection of adverse drug events within population-based health networks: application of sequential testing methods.

PURPOSE: Active surveillance of population-based health networks may improve the timeliness of detection of adverse drug events (ADEs). Active monitoring requires sequential analysis methods. Our objectives were to (1) evaluate the utility of automated healthcare claims data for near real-time drug adverse event surveillance and (2) identify key methodological issues related to the use of healthcare claims data for real-time drug safety surveillance. METHODS: We assessed the ability to detect ADEs using historical data from nine health plans involved in the HMO Research Network's Center for Education and Research on Therapeutics (CERT). Analyses were performed using a maximized sequential probability ratio test (maxSPRT). Five drug-event pairs representing known associations with an ADE and two pairs representing 'negative controls' were analyzed. RESULTS: Statistically significant (p < 0.05) signals of excess risk were found in four of the five drug-event pairs representing known associations; no signals were found for the negative controls. Signals were detected between 13 and 39 months after the start of surveillance. There was substantial variation in the number of exposed and expected events at signal detection. CONCLUSIONS: Prospective, periodic evaluation of routinely collected data can provide population-based estimates of medication-related adverse event rates to support routine, timely post-marketing surveillance for selected ADEs.

Quality of care in for-profit and not-for-profit health plans enrolling Medicare beneficiaries.

BACKGROUND: For-profit health plans now enroll the majority of Medicare beneficiaries who select managed care. Prior research has produced conflicting results about whether for-profit health plans provide lower quality of care. OBJECTIVE: The objective was to compare the quality of care delivered by for-profit and not-for-profit health plans using Medicare Health Plan Employer Data and Information Set (HEDIS) clinical measures. RESEARCH DESIGN: This was an observational study comparing HEDIS scores in for-profit and not-for-profit health plans that enrolled Medicare beneficiaries in the United States during 1997. OUTCOME MEASURES: Outcome measures included health plan quality scores on each of 4 clinical services assessed by HEDIS: breast cancer screening, diabetic eye examination, beta-blocker medication after myocardial infarction, and follow-up after hospitalization for mental illness. RESULTS: The quality of care was lower in for-profit health plans than not-for-profit health plans on all 4 of the HEDIS measures we studied (67.5% vs 74.8% for breast cancer screening, 43.7% vs 57.7% for diabetic eye examination, 63.1% vs 75.2% for beta-blocker medication after myocardial infarction, and 42.1% vs 60.4% for follow-up after hospitalization for mental illness). Adjustment for sociodemographic case-mix and health plan characteristics reduced but did not eliminate the differences, which remained statistically significant for 3 of the 4 measures (not beta-blocker medication after myocardial infarction). Different geographic locations of for-profit and not-for-profit health plans did not explain these differences. CONCLUSION: By using standardized performance measures applied in a mandatory measurement program, we found that for-profit health plans provide lower quality of care than not-for-profit health plans. Special efforts to monitor and improve the quality of for-profit health plans may be warranted.

Consumer assessments of care for children and adults in health plans: how do they compare?

OBJECTIVES: The Consumer Assessment of Health Plans Survey (CAHPS) includes an adult version and also a child version for parents or caretakers to rate children's care in health plans. This study examined how adult and child assessments differed in ranking health plans and explored whether the differences justified the additional cost and respondent burden in administering both surveys. METHODS: Data were from 136 commercial health plans participating in the National CAHPS Benchmarking Database, with 80,539 adults and 40,003 children. We compared mean assessments for adults and children on four global ratings and five composites, and determined respondent characteristics predictive of these assessments using regression analysis. We calculated correlations of plan mean scores for adults and children and kappa statistics for agreement when health plans are ranked as above average, average, or below average performers based on adult and child scores. RESULTS: CAHPS scores for children were significantly (P <0.001) higher than those for adults, except for customer service (lower for children) and specialist ratings. Similar respondent characteristics predicted adult and child scores. Plan-level correlations between corresponding adult and child mean scores were moderate to high (r = 0.60-0.85), which translate into fair to moderate agreement (kappa = 0.27-0.61) in ranking health plans. CONCLUSIONS: Adult and child CAHPS provide similar scores and plan rankings on many aspects of care. Child reports include information that may be useful for consumer choice and to health plans for targeting quality improvement. Methods should be developed for assessing health care for children that minimize cost and respondent burden.

The health plan choices of retirees under managed competition.

OBJECTIVE: To investigate the effect of price on the health insurance decisions of Medicare-eligible retirees in a managed competition setting. DATA SOURCE: The study is based on four years of administrative data from the University of California (UC) Retiree Health Benefits Program, which closely resembles the managed competition model upon which several leading Medicare reform proposals are based. STUDY DESIGN: A change in UC's premium contribution policy between 1993 and 1994 created a unique natural experiment for investigating the effect of price on retirees' health insurance decisions. This study consists of two related analyses. First, I estimate the effect of changes in out-of-pocket premiums between 1993 and 1994 on the decision to switch plans during open enrollment. Second, using data from 1993 to 1996, I examine the extent to which rising premiums for fee-for-service Medigap coverage increased HMO enrollment among Medicare-eligible UC retirees. PRINCIPLE FINDINGS: Price is a significant factor affecting the health plan decisions of Medicare-eligible UC retirees. However, these retirees are substantially less price sensitive than active UC employees and the non-elderly in other similar programs. This result is likely attributable to higher nonpecuniary switching costs facing older individuals. CONCLUSIONS: Although it is not clear exactly how price sensitive enrollees must be in order to generate price competition among health plans, the behavioral differences between retirees and active employees suggest that caution should be taken in extrapolating from research on the non-elderly to the Medicare program.

Role of information in consumer selection of health plans.

Considerable efforts are underway in the public and private sectors to increase the amount of information available to consumers when making health plan choices. The objective of this study was to examine the role of information in consumer health plan decisionmaking. A computer system was developed which provides different plan descriptions with the option of accessing varying types and levels of information. The system tracked the information search processes and recorded the hypothetical plan choices of 202 subjects. Results are reported showing the relationship between information and problem perception, preference structure, choice of plan, and attitude towards the decision.

Small businesses' changing views on health reform.

Our national sample of 750 randomly chosen firms with fewer than 50 employees reveals surprising findings about the traditional views of small business on health care reform. A substantial segment of the small business community is sympathetic to health care reform, including such controversial measures as mandating that all employers contribute to the coverage of their workers, limits on health care spending, and altering the tax treatment of employer contributions for health insurance. Without premium savings, fewer than half of small businesses support the concept of health insurance purchasing cooperatives. With premium savings, a majority support it.

Health care reform: managed competition and beyond.

Since the election, the health care reform debate has focused on three broad features: implementation of managed competition, changes in the tax treatment of health insurance, and the imposition of budget caps or targets. The basic element of managed competition is the creation of sponsors who act as collective purchasing agents for large groups of individuals. One of the potentially most politically difficult issues in implementing any health care reform proposal is likely to be defining the minimum standard benefit package. It will determine the costs society bears, the income of providers, the health of many individuals, and the attributes of a workable health care reform package. Managed competition is intended to foster competition among health plans on the basis of cost and quality. The measures of quality actually employed in the health care system will determine in large part the incentives faced by insurers, providers, and consumers. The problem of adverse selection is potentially the most important issue in reforming the health insurance market. If individuals can opt not to purchase health benefits, poorer risks will be more likely to purchase health insurance than good risks, and at minimum the price of these benefits will be higher than would otherwise be the case. Managed competition requires that individuals share at least some of the financial consequences of their choices among health plans. As a result, most managed competition proposals change the tax code by limiting the exclusion of employer contributions to health insurance from worker's taxable income. Changing the health insurance market, mandating employer health benefits, and changing the tax code may have significant effects on the health care delivery system, but they are unlikely to reduce health care cost inflation in the near term. One of the proposals for restraining the growth in health care costs is the imposition of a budget on the amount spent on health care services. The combination of the constraints placed on federal governmental action by the budget and the significant political problems involved in reaching a consensus on the important elements of health care reform may limit the ability of the federal government to implement national health care reform in the near term. As a result, individual states may be encouraged by the federal government to continue to experiment with their own health reform programs.

The marketplace in health care reform. The demographic limitations of managed competition.

BACKGROUND: The theory of managed competition holds that the quality and economy of health care delivery will improve if independent provider groups compete for consumers. In sparsely populated areas where relatively few providers are required, however, it is not feasible to divide the provider community into competing groups. We examined the demographic features of health markets in the United States to see what proportion of the population lives in areas that might successfully support managed competition. METHODS: The ratios of physicians to enrollees in large staff-model health maintenance organizations were determined as an indicator of the staffing needs of an efficient health plan. These ratios were used to estimate the populations necessary to support health organizations with various ranges of specialty services. Metropolitan areas with populations large enough to support managed competition were identified. RESULTS: We estimated that a health care services market with a population of 1.2 million could support three fully independent plans. A population of 360,000 could support three plans that independently provided most acute care hospital services, but the plans would need to share hospital facilities and contract for tertiary services. A population of 180,000 could support three plans that provided primary care and many basic specialty services but that shared inpatient cardiology and urology services. Health markets with populations greater than 180,000 would include 71 percent of the U.S. population; those with populations greater than 360,000, 63 percent; and those with populations greater than 1.2 million, 42 percent. CONCLUSIONS: Reform of the U.S. health care system through expansion of managed competition is feasible in medium-sized or large metropolitan areas. Smaller metropolitan areas and rural areas would require alternative forms of organization and regulation of health care providers in order to improve quality and economy.

Is managed competition a field of dreams?

In recent months, managed competition has gained the upper hand in the debate over how to reform the U.S. health system and likely will be a part of President-elect Clinton's proposal. But recent data reveal that managed care plans, an important piece of the managed competition approach, have not significantly altered the rate of increase in costs. These findings cast doubt on the assumption by managed competition advocates that the proper incentives exist to cause the health delivery system to reorganize itself.

Managed competition in Minnesota.

The state of Minnesota Employee Group Insurance Program is one of the longest-operating examples of the managed competition approach to health insurance purchasing. The program, now in its fifth year of managed competition, has achieved many of the outcomes projected by managed competition theorists, including significant savings in health care costs and expansion of managed care in rural areas. The program's experience may offer insights into the potential success of managed competition in other settings.

Creating the market under managed competition: getting there will not be half the fun.

To develop a framework for managed competition, implementers of health care reform will need to encourage the development of a large number of new AHPs. If experience with the rapid growth in HMOs that occurred in the late 1980s can serve as a guide, it would be expected that many new IPAs will form and that their development will occur at different rates in different communities, depending in part on the supply of medical resources and population demographics. There is evidence from past studies that new IPA entrants can stimulate the price competition desired by health care reformers. Lower bid prices were submitted by plans in the AHCCCS program in markets where new IPAs were competitors. IPAs also can fail, however, particularly at low enrollment levels. Implementers need to be concerned about the political and operational consequences of AHP failures during the early stages of health reform. If managed competition is to contain costs, implementers will need to develop effective policies to stimulate AHP entry, to oversee the performance of new AHPs during initial periods of low enrollment, and to protect consumers from any adverse consequences of AHP failures. It is possible that a large number of failures could occur among newly formed AHPs and that such failures could undermine the confidence of the public in managed competition. This would probably lead to calls for the replacement of managed competition with a more centrally managed and closely regulated health care system.