Managed Care

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Early Medical Cooperatives

March 15, 2012 in Health Insurance, Managed Care | 2 comments

In the days before health reform’s pasage, many reform proponents argued for the advent of co-operative healthcare systems or “co-ops”.  Co-ops, however, have been around for a long time before that.

“In the late forties, over a hundred small rural health cooperatives were founded.  Nearly all of these were in the Southwest, fifty in Texas alone.  But, opposed by doctors and short of resources, few of them survived for as much as a decade.  Such small cooperatives were not actuariallly sound.  They might perhaps have been saved by an extended, federated form of organization that would have allowed them to gain stability from larger scale, but this they never achieved.  So although they originated as a rural movement, the medical cooperatives, such as they were, survived primarily in cities.”

Who governed these cooperatives?  There were three general models.

“Group Health Cooperative was owned by its membership, who voted on a one-member, one-vote basis to elect trustees and to make major policy decisions.  The cooperative sought active participation by conducting referenda by mail and periodic assemblies.  Kaiser, on the other hand, declined to give its subscribers any role in governing the plan.  Power resided in two corporations controlled by the Kaiser family and its company executives.  HIP, yet a third type, was governed by a self-perpetuating board that included liberal representatives of business, labor, the medical profession, and government.”

For more information on the history of managed care, see also this Brief History of Managed Care from the Tufts Managed Care Institute.

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Bring Market Prices to Medicare

December 16, 2011 in Books, Health Insurance, Managed Care, Medicare, Medicare Advantage | 5 comments

Medicare is a government-run insurance program.  Can policy changes be made to add competition to Medicare, maintain quality and reduce cost?  A book titled Bring Market Prices to Medicare argues that it can through a competitive bidding process. This book makes a number of sensible arguments which I review today.

The main proposal of the book is a competitive bidding process for all Medicare plans. Currently, there is a form of competitive bidding only for Medicare Advantage (MA) managed care plans. The authors also argues for competitive bidding for fee-for-service (FFS) Medicare (i.e., Parts A and B).  There is already a competitive bidding process for Medicare’s prescription drug program (Part D) which has worked well.

One of the main advantages of Medicare FFS is that beneficiaries do not need a referral for any services and are not limited to certain provider networks. However, Medicare beneficiaries do not pay for these added benefits. In addition, even if HMOs are more efficient than Medicare FFS, Medicare FFS beneficiaries still pay the same Part B premiums.

The authors want beneficiaries to face the true price differentials between the lowest cost plans and less efficient plans., regardless if the plan is Medicare FFS or an MA plan. Thus, beneficiaries would be responsible for any premium differences due to choosing a more expensive plan.

Currently, MA plans receive a variant of the average bid in their service area. The authors propose that Medicare would only pay for the lowest cost plan. This proposal would in essence be a transfer from plans and beneficiaries (who would have to pay the cost differential between the plan they choose and the lowest cost plan) to the government. Given the fiscal hole the federal government is facing, this is a good idea.

Authors also propose to eliminate the 25% tax on premiums. According to MedPAC, “Plans that bid below the benchmark also receive payment from Medicare in the form of a “rebate.” The law defines the rebate as 75 percent of the difference between the plan’s actual bid (not standardized) and its case mix-adjusted benchmark. The plan must then return the rebate to its enrollees in the form of supplemental benefits or lower premiums” The rebate structure gives plans a disincentive from lowering their bids since they only recover a share of the cost decreases.

Another issue focuses on regional adjustments. Living in New York is expensive and health care is more expensive in New York than in rural Mississippi. However, should Medicare subsidize New Yorkers because their health care is more expensive. The authors argue no, but poor individuals in high cost areas will be adversely affected by this policy choice.

A major issue is controlling quality. Plans could create low cost plans by providing low-quality care or failing to provide mandated services. Thus, CMS will need to regulate the plans. Plans with quality levels below a specific level would be barred from enrolling individuals or the government could force beneficiaries to pay additional premiums to enroll in these low quality plans. Public reporting of plan quality is also needed.

Strategic bidding is also a problem. Plans could collude to raise the bid price. However, by having Medicare FFS as an option will cap the amount colluding firms could increase prices. Further, a small firm could bid a very low amount and set the market. Medicare could set the benchmark at the lowest cost plan which meets a minimum size requirement.

Source:

Another Review of the Book:

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Does California really love Managed Care?

November 28, 2011 in Current Events, Health Insurance, Managed Care, Medicaid, Medicare, Medicare Advantage | 1 comment

In short, yes. California is the land of managed care. Kaiser-Permanente–the managed care poster child–owns one third of the market.  Love for managed care is not just in the private market; in 2010, over half of all Medi-Cal and more than one-third of Medicare beneficiaries were enrolled in managed care plans.  Further, California managed care plans even have their own regulator.  Whereas the California Department of Insurance (CDI) regulates non HMOs, the California Department of Managed Health Care (DMHC) regulates HMOs.

A recent report by the California Health Care Foundation investigates managed care in California and provides a high quality overview of the California health insurance market.  Some of their findings include:

  • Five insurance carriers (Kaiser, Anthem Blue Cross, Health Net, Blue Shield, United Healthcare) accounted for three-fourths of the $105 billion health insurance revenues in California in 2010. Revenue growth has been slower for managed care plans in recent years, however.
  • The six largest managed care plans together lost more than 400,000 commercial enrollees. On the other hand, Medi-Cal and Medicare managed care enrollment grew.
  • Anthem Blue Cross and Blue Shield experienced enrollment decline in 2010, which reversed a previous growth trend.
  • Large majorities of HMO and PPO members rated their plan highly in terms of getting appointments quickly, finding a doctor, and getting the care they need. HMO enrollees more often rated their care highly than those enrolled in PPOs, while PPO participants were more likely to favorably cite their ability to get an appointment quickly.

Source: Katherine Wilson, “California Health Plans and Insurers” California Health Care Foundation, November 2011.

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Does getting cancer incentivize individuals to switch from Medicare managed care to FFS?

November 8, 2011 in Cancer, Medicaid/Medicare, Medicare Advantage, Quality | No comments

Medicare beneficiaries have a choice: pick the standard Medicare fee-for-service (FFS) benefit or rely on managed care plans to supply their healthcare through the Medicare Advantage (MA) program.  Many Medicare beneficiaries prefer MA because it offers them lower out-of-pocket costs and provide benefits not available in the traditional FFS Medicare program. Other beneficiaries prefer the FFS benefit because MA plans typically restrict provider choice in an effort to control costs.

The quality of care in Medicare MA relative to FFS, however, has still not yet been consistently evaluated.  Because beneficiaries can switch from MA to FFS each year, if quality is low, healthy individuals may prefer MA to reap the reduced cost sharing benefits, but when they become sick they may switch to Medicare FFS.

A study by Elkin and co-authors evaluates whether or not this is the case for beneficiaries who get cancer.

Data and Methodology

“We identified Medicare managed care enrollees aged 65 years or older who were diagnosed with a first primary breast (n = 28 331), colorectal (n = 26 494), prostate (n = 29 046), or lung (n = 31 243) cancer from January 1, 1995, through December 31, 2002, in Surveillance, Epidemiology, and End Results (SEER) cancer registry records linked with Medicare enrollment files. Cancer patients were pair-matched to cancer-free enrollees by age, sex, race, and geographic location. We estimated rates of voluntary disenrollment to fee-for-service Medicare in the 2 years after each cancer patient ’ s diagnosis, adjusted for plan characteristics and Medicare managed care penetration, by use of Cox proportional hazards regression.”

Results

The authors find that MA beneficiaries with cancer are less likely to switch to FFS than a cancer-free beneficiary. The hazard ratios range from 0.78 for colorectal cancer to 0.86 for prostate cancer. The results were consistent across various age, sex, race, cancer stage and region strata.

The likely reason for this finding is that people who have a serious disease do not want to change coverage. Even if the FFS benefit offers improved access to better care, there are significant costs of switching coverage. The new FFS providers may have less knowledge of the individual beneficiary’s health condition and the change can be stressful for the beneficiary as well. A worthwhile analysis to confirm whether this is the case would be to examine whether FFS beneficiaries who contract cancer are more likely to switch to a MA plan after contracting cancer. If the transaction cost/care coordination is driving Elkin’s results, then FFS beneficiaries with cancer should also be less likely to switch to MA than cancer-free FFS beneficiaries.

It could also be the case that MA provides high quality care for the most prevalent cancers (i.e., prostate, lung, colorectal, and breast), but there is a significant improvement in quality when beneficiaries visit FFS providers when they have rarer diseases. To confirm whether or not this is the case, the authors examine whether beneficiaries with non-Hodgkin lymphoma, acute leukemia, and soft tissue sarcoma are more likely to switch to FFS. The authors found no effect of these cancer diagnoses on the likelihood of disenrollment from a managed care plan.

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Do Medicaid Managed Care Organizations Save Money?

September 28, 2010 in Managed Care, Medicaid, Medicaid/Medicare | No comments

In the 1990s, State Medicaid programs turned to Managed Care Organizations (MCOs) to reduce costs.  States such as Florida, Indiana, Kentucky, Louisiana, Missouri, Ohio, South Carolina and Texas attempted to turn over their entire Medicaid programs to MCOs through waivers.  For instance, in 2007 MO HealthNet mandated managed care for all participants by 2013.

Some of the larger Medicaid MCOs are subsidiaries of large insurance groups.  Two examples include WellPoint Health Networks and AmeriChoice (a Medicaid-only subsidiary of United Health Group, Inc.).

Do MCOs offer better care at lower costs than State governments?  Laura Katz Olson believes not.  Many Medicaid MCOs instituted “gag rules” which controlled what physicians could disclose to their patients about treatment options.  Other MCOs gave bonuses to physicians who limited services to their patients.

A study by Mark Duggan (2004) found that “the resulting switch from fee-for-service to managed care was associated with a substantial increase in government spending but no corresponding improvement in infant health outcomes. The findings cast doubt on the hypothesis that HMO contracting has reduced the strain on government budgets.”

Another study by Landon et al. (2007) found that “the performance for the commercial population exceeded the performance for the Medicaid population on all measures except 1, ranging from a difference of 4.9% for controlling hypertension (58.4% for commercial vs 53.5% for Medicaid; P = .002) to 24.5% for rates of appropriate postpartum care (77.2% for commercial vs 52.7% for Medicaid; P = .001). Differences of similar magnitude were observed for commercial and Medicaid populations treated within the same health plan.”

One alternative to compelling  beneficiaries to enroll in MCOs is to allow them to choose which MCO they want.  In 2006, Florida Governor Jeb Bush began an “empowered care” pilot which gives Medicaid beneficiaries a subsidy based on their health status and prior use of health services.  Beneficiaries could use the subsidy to buy their own health insurance if they wished.  Because of limited government oversight, low physician participation rates, and a lack of clarity of the benefits which were covered, the Florida inspector general found that MCOs have “too few specialist, untimely access to care, inaccurate information about resources and patient needs, and inaccessible drug coverage information and consumer service phone numbers.”

Although I am in favor of additional patient choice, additional transparency is needed in order for patient choice to work.  Even if beneficiary choice improve satisfaction, one must still worry that risk adjustment will be imperfect and MCOs will “select” the healthiest beneficiaries to enroll in their plan.

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How does managed care affect physician incentives to reduce care?

October 30, 2008 in Physician Compensation, Supply of Medical Services | Permalink

Patients generally believe that managed care systems are put in place to restrict their access to care.  Many patients believe that physicians who receive capitation compensation will provide less care to their patients than physicians who are paid on a fee-for-service basis.  A paper by Fang and Rizzo (2008) investigates whether or not this is really they case.

The authors find that “both capitated and noncapitated managed care significantly increased physician incentives to reduce care during 2000-2001.”  This is just what economists would predict.  When physicians receive capitation payment, they receive non-positive marginal revenue, giving them an incentive to reduce care.

By 2004-2005, however, Fang and Rizzo found no statistically significant difference in physician desire to reduce care between physicians in managed care organizations and those who were not.  Capitation compensated doctors still were more likely to reduce care levels than other doctors but this was only marginally statistically significant (p<.08) and of a much smaller magnitude.

What can we conclude from this?  Likely it is the case that over time, managed care organizations have become less managed; non-managed care organizations have put in place more restrictions over time.  Separately identifying how managed care incentives (e.g., referral restrictions) and physician compensation incentives (i.e., capitation vs. fee-for-service) impact care levels is very important as insurance plans become more homogeneous.

If you are interested in how physician compensation affects surgery rates, you can read my paper “Operating on Commission: How physician financial incentives affect surgery rates.”

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