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PubMed1998

Risk adjustment and the trade-off between efficiency and risk selection: an application of the theory of fair compensation.

We exploit the similarity between the problem of risk adjustment with prospective reimbursement schemes in the health care sector and the problem of fair compensation analysed in the social choice literature. The starting point is the distinction between two sets of variables in the explanation of medical expenditures: those for which the insurers (or the providers) can be held responsible, and those for which they have to be compensated. Using this partitioning the objectives of cost-efficiency and no risk selection can be expressed in terms of two simple axioms. If the medical expenditure function is additively separable in the two sets of variables, there exists a natural division rule which is analogous to the standard linear risk adjustment schemes. We show how this rule should be applied if the total level of actual medical expenditures is different from the budget to be divided over the insurers (or providers) and how information from the disturbances in the regression equation can be used in an optimal way. We discuss the analogy with mixed reimbursement systems. If the medical expenditure function is not additively separable in the two sets of variables, the conflict between efficiency and risk selection is unavoidable, even if one has perfect information about that function. The theoretical results are illustrated with empirical results derived from the Belgian setting where the move towards prospective reimbursement of the mutualities has necessitated the introduction of a risk adjustment formula.

Belgium↗
PubMed1999

Addressing the inequity of capitation by variable soft contracts.

In the search for greater efficiency and cost-containment, many health systems have introduced the practice of medical care providers operating under a fixed budget, often referred to as the capitation or fundholding contract. Although the capitation contract seems equitable at first glance, the sequential decision-making practice of providers-shaped by their rate of present-preference and their attitude toward the risk of running out of budget-may result in serious violations of basic equity principles. We propose a variable soft (or mixed) payment contract (VSC), where the share of the retrospective payment increases over time, as a way to make the contracts more equitable. We also discuss how the parameters of the capitation contract (length of the budget period, soft or hard contracts, solo vs. consortium practice etc.), which are usually set by efficiency criteria, may have serious implications with regard to the equity of the system.

Budgets↗
PubMed1999

Inferring capitation rates from aggregate health plans' costs.

Setting risk-adjusted capitation rates in health systems with centralized financing and decentralized delivery is one of the most intriguing policy issues. The common practice to set capitation group rates is based on individual data collected from either population surveys or medical records, using a single-and in most cases arbitrary-set of relative unit costs of services. This paper presents a method for estimating group-specific mean costs and capitation rates using a panel of aggregate cost data of the competing health plans and the composition of their populations. This method is used to estimate mean costs and capitation rates for the Israeli health care system. The limited data available severely constrains the range of estimable models, however, the results evoke some questions with regards to reimbursement and rates presently used, as well as to the methodology used to estimate them.

Adolescent↗
PubMedDate not supplied

The regulation of general practice in the UK.

When health professionals offer primary health services on a private market a number of problems can arise to do with choice, quality and supplier-induced demand. Professional self-regulation through qualification requirements and licensing procedures may offset some of the worst problems. However, in the UK, the primary health care sector is also subject to additional regulatory controls set within the context of the NHS. Private practitioners within the NHS function in a quasi-market setting, in which they are funded by public health authorities to provide services free at the point of delivery to their patients. Within this context there is regulation of quality, entry, prices and profits. This system can be contrasted with the much less extensive set of regulations applied to more market-based systems operating in countries such as the USA. Recent reforms in the UK have, however, initiated a movement towards a market-led system, extended the autonomy of health care practitioners, and increased the scope of financial incentives as a mechanism to promote professional quality and innovation. This article draws on the insights developed in Propper (1993) in her study of regulation and quasi-markets in secondary health care, education and community care. Its focus is on the extent of regulation in primary health care services; the effects of increased financial incentives on professional performance brought about by the NHS reforms; and, the scope for further deregulation of professional services in primary care.

Capitation Fee↗
PubMedDate not supplied

A reforming accountability: GPs and health reform in New Zealand.

Over the last ten years or so, many countries have undertaken public sector reforms. As a result of these changes, accounting has come to play a more important role. However, many of the studies have only discussed the reforms at a conceptual level and have failed to study how the reforms have been implemented and operated in practice. Based on the work of Lipsky (1980) and Gorz (1989), it can be argued that those affected by the reforms have a strong incentive to subvert the reforms. This prediction is explored via a case study of general practitioner (GP) response to the New Zealand health reforms. The creation of Independent Practice Associations (IPAs) allowed the State to impose contractual-accountability and to cap their budget exposure for subsidies. From the GP's perspective, the IPAs absorbed the changes initiated by the State, and managed the contracting, accounting and budgetary administration responsibilities that were created. This allowed individual GPs to continue practising as before and provided some collective protection against the threat of state intrusion into GP autonomy. The creation of IPAs also provided a new way to manage the professional/financial tension, the contradiction between the professional motivation noted by Gorz (1989) and the need to earn a living.

Budgets↗
PubMed2000

Equity in the allocation of health care resources.

This paper examines some of the issues that arise when seeking to tackle health inequalities in a context of limited health care resources. Increasingly, central agencies are using devolved budgets for health care providers as a central instrument of expenditure control. Equity objectives play an important role in the resource allocation methods used to determine such budgets. Yet, unless integrated into a proper system of risk management, the use of budgets can lead to serious inequity. The paper discusses the potential contributions of different disciplines to promoting equity within a health care budgetary regime.

Budgets↗
PubMed1994

Serious mental illness and capitation financing.

Traditional organization and financing of mental health care has not adequately served the needs of persons with serious mental illness. Capitation financing is being tested in several localities, but little experimental data has been yielded to date, and it is mixed. The results from the Rochester experiment were positive but limited, and some other pilots also reported positive experiences with capitation. Others have ended prematurely or confronted obstacles. Experimental findings are also anticipated from the Philadelphia and California pilots, and others are just beginning. Existing financing mechanisms, cost-shifting efforts, and professional cultures represent powerful obstacles to successfully implementing capitation financing for care of persons with long-term mental illnesses, and potential incentives to underserve enrollees require adequate accountability structures. In spite of obstacles, the goodness of fit between the needs of persons with serious mental illness and capitation flexibility warrant further exploration of this financing modality.

Capitation Fee↗
PubMed1988

Legal problems of health care cost containment.

Employers faced with rising health care costs are exploring various means to control them. One way is prospective utilization review, although this may pose significant legal risks. Another is the capitation form of payment in which an employer contracts with a health care provider either directly or through an employer-sponsored HMO. The authors discuss these alternatives and the implications for employers.

California↗
PubMed2006

Free choice of health plan combined with risk-adjusted capitation payments: are switchers and new enrolees good risks?

It is well established in the literature that the young and healthy are more inclined to switch health plan, given the opportunity. In countries where risk-adjusted capitation payments are used to create a level playing field for the competing health plans, as is the case in The Netherlands, it is important to determine whether plans could exploit such selective switching to gain unfair advantage. This study analyses whether various risk-adjustment models are capable of compensating adequately for selective switching in the Dutch sickness fund sector. Data concern information on health care expenditures, demographics and indicators of chronic diseases for 10 million members from 21 funds. Results indicate that switchers in 2000-2001 had expenditures that were around 40% below average in 1994-2002, confirming that movers are 'good' risks in absolute terms. However, after taking into account that these people are younger and healthier, the risk-adjusted payments for them nearly equalled actual expenditures. This holds for both people who in fact switched from one fund to another, and for those who were forced by regulation to leave the private insurance sector and who had to choose a sickness fund. Importantly, models using only demographics could not achieve this.

Adult↗
PubMed1993

Capitation payments based on prior hospitalizations.

In many countries the concept of capitating health care insurers is receiving increasing attention. In a competitive environment, capitation should induce insurers to concentrate more on cost containment instead of indulging in risk selection. The necessary premium-replacing capitation payments should account for predictable variations in annual per-person health care expenditures as far as these are related to health status. Various studies have shown that crude capitation models based on e.g. age, sex and place of residence, do not reflect expected costs accurately. This implies inefficient pricing possibly leading to risk selection and windfall profits or losses for insurers, thereby undermining the objectives of a capitation system. Using Dutch micro data on some 200,000 individuals, this article stimulates various alternative capitation models based on, among others, diagnostic information from previous hospitalizations. Results suggest that the problems of both risk selection and windfall profits/losses may be mitigated substantially by using this type of information together with data on prior costs. These results are not only relevant for situations where competing insurers are capitated, as intended in the Netherlands, but also when providers are capitated, as in the UK, or when HMOs are capitated, as in the US.

Capitation Fee↗
PubMedDate not supplied

Reimbursing insurance carriers: the case of 'MUFACE' in the Spanish health care system.

This article aims at contributing to the analysis of financial incentives in managed competition, on the basis of the literature on procurement and regulation under incomplete information. More specifically, we focus on MUFACE, the publicly funded health care system for Spanish civil servants and dependants. MUFACE makes up an internal market, where competing public and private insurers are reimbursed a flat capitation payment. Some of our results are that theoretically, both pre-contractual (adverse) selection of insurers contracted by MUFACE, and post-contractual risk selection of enrollees undertaken by insurers, should occur under flat capitation.

Capitation Fee↗
PubMed2002

How profitable is risk selection? A comparison of four risk adjustment models.

To mitigate selection triggered by capitation payments, risk-adjustment models bring capitation payments closer on average to individuals' expected expenditure. We examine the maximum potential profit that plans could hypothetically gain by using their own private information to select low-cost enrollees when payments are made using four commonly used risk adjustment models. Simulations using a privately insured sample suggest that risk selection profits remain substantial. The magnitude of potential profit varies according to the risk adjustment model and the private information plans can employ to identify profitable enrollees.

Actuarial Analysis↗
PubMed2002

Reducing avoidable inequalities in health: a new criterion for setting health care capitation payments.

Traditionally, most health care systems which pretend to any sort of rationality and cost control have sought to allocate their limited funds in order to secure equal opportunity of access for equal need. The UK government is implementing a fundamental change of resource allocation philosophy towards 'contributing to the reduction of avoidable health inequalities'. The purpose of this essay is to explore some of the economic issues that arise when seeking to allocate health care resources according to the new criterion. It indicates that health inequalities might arise because of variations in the quality of health services, variations in access to those services, or variations in the way people produce health, and that the resource allocation consequences differ depending on which source is being addressed. The paper shows that an objective of reducing health inequalities is not necessarily compatible with an objective of equity of access, nor with the objective of maximising health gain. The results have profound consequences for approaches towards economic evaluation, the role of clinical guidelines and performance management, as well as for resource allocation methods.

Capitation Fee↗
PubMed2003

Medical care use and selection in a social health insurance with an equalization fund: evidence from Colombia.

This paper studies the relationship between health status and insurance participation, and between insurance status and medical use in the context of a social health insurance with an equalization fund (SHIEF). Under this system, revenues from a mandatory payroll tax are collected into a single pool (equalization fund) that reimburses for-profit insurance companies according to a capitated formula. Although competition should induce insurers to control costs without reducing the quality of service necessary to attract consumers, limitations in the capitation formula might induce insurers to select against bad risks, and limitations in the contribution system might induce more healthy individuals to evade enrollment. A three-equation model having social health insurance, private health insurance, and using medical services is estimated using a 1997 Colombian household survey. Consistent with similar studies, participation in SHIEF increases medical care use. On the other hand, the evidence on selection is somewhat mixed: individuals who report good health status are more likely to participate in SHIEF, while those without a chronic condition are less likely to participate in SHIEF.

Capitation Fee↗
PubMed2003

Modelling supply and demand influences on the use of health care: implications for deriving a needs-based capitation formula.

Many health-care systems allocate funding according to measures of need. The utilisation approach for measuring need rests on the assumptions that use of health care is determined by demand and supply and that need is an important element of demand. By estimating utilisation models which allow for supply it is possible to isolate the socio-economic and health characteristics which affect demand. A subset of these variables can then be identified by a combination of judgement and further analysis as needs variables to inform funding allocations. We estimate utilisation models using newly assembled data on admissions to acute hospitals, measures of supply, morbidity and socio-economic characteristics for 8414 small geographical areas in England. We make a number of methodological innovations including deriving additional measures of specific morbidities at small area level from individual level survey data. We compare models with different specifications for the effect of waiting times and provider characteristics, with total, planned and unplanned hospital admissions, and estimated at small area (ward) and primary care organisation (general practice) level. After allowing for waiting times, distance, capacity and the availability of private health care, measures of mortality, self-reported morbidity, low education and low income increase the use of health care. We find evidence of horizontal inequity with respect to ethnicity and employment and suggest a method for reducing its effects when deriving a needs-based allocation formula.

Capitation Fee↗
PubMedDate not supplied

A policy of introducing a new contract and funding system of general practice in Estonia.

The socialist bloc of post-war Europe was obliged to follow the Soviet example with a hierarchical, centrally controlled health care system based on polyclinics and other facilities providing extensive specialist services at the first level of contact. All the countries of Central and Eastern Europe have now expressed their wish to totally change their health care systems. Changes in these countries include: the introduction of market economy mechanisms in health care, an increased focus on population health needs in guiding health care systems, and the possibility of introducing a more general type of care at primary level. Patient expectations of access, choice and convenience are factors in shaping new models of health care delivery. Appropriate timing is the key determinant of the success of reforms. In Estonia the beginning of the 1990s was the time when several interest groups in society supported changes in the health care system. The first step after regaining independence was the reintroduction of a Bismarck-type insurance system. In the late 1990s the primary care reforms have changed the initial plans and elements of a National Health Service were introduced, especially general practitioners' lists, capitation payment and gate-keeping principles. The family medicine reform in Estonia has two main objectives: introduction of general practice as a specialty into Estonian health care and changing the remuneration system of primary care doctors. The specific tasks are: to provide practising primary care doctors with opportunities for retraining to gain the specialty status of a general practitioner, to create a list system for the population to register with a primary care doctor, to introduce a partial gate-keeping system and to give the status of the independent contractor to primary care doctors.

Capitation Fee↗