Unbiased Analysis of Today's Healthcare Issues

Consumer Channeling and Preferred Providers

Written By: Jason Shafrin - Feb• 19•08

Doctors often complain that health insurers are squeezing their profit margins. These insurers offer the physicians access to patients as part of their network in exchange for discounted fees. Physicians can decide not to join the network and charge higher prices, but may be left with fewer patients. The bargaining power of the health insurer depends on how many patients they are able to channel towards these physicians.

In the U.S., most health insurers restrict provider choice ex ante by using either prohibiting patients from visiting providers outside the network or charging the patients significantly higher co-payment rates if go to a provider outside the network. In the Netherlands, almost all care is free to patients so insurer need to use ex post incentives (e.g.: bonuses, gift certificates, and extra services) in order to entice the patients to use the services of the preferred provider.

A paper by Boonen, Schut and Koolman in the most recent edition of Health Economics examines how well the ex post incentives function in the Netherlands’ pharmacy market. Since pharmacies are regulated and prescription drugs are a homogeneous commodity, quality differences between pharmacies are negligible. The authors use data from two health insurers who attempt to direct their enrollees to specific pharmacies.

Using a multinomial logit framework, the authors find that convenience (i.e.: distance to the pharmacy) has a large impact. The financial incentives offered by health insurer A and B cause many enrollees to use the preferred provider. Health insurer A, however, gave a 10 € for the patient’s first visit to the pharmacy and 5 € for their second visit to the pharmacy. Under this incentive structure, individuals were more likely to switch to the preferred provider and then return to their original pharmacy after the incentives had disappeared. Only 25% of those who switch to the preferred provider continue to use them after the financial incentives disappear.

Health insurer B offered a discounts on products offered at the preferred pharmacy and these incentives were made permanent. Unsurprisingly, enrollees also were more likely to go to the preferred provider after the financial incentive regime was enacted.

One interesting item of note is that Health insurer B’s preferred pharmacy was in the same building as a general practitioner (GP). Since GPs function as gatekeepers in the Dutch system (i.e.: one cannot a prescription without the GPs approval), having the GP in the same building as the pharmacy was a huge convenience. Further, the GP could influence the patient to use the preferred pharmacy.

In summary, it was shown in the Dutch setting that even small incentives can have a large effect on provider choice.

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