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The legal framework for effective competition.

Largely because of its indifference to spiraling costs, the professional domination model is being replaced by a market model based on competition among managed care plans and integrated delivery systems. In general, the more fully integrated previously competing providers become--for instance, by assuming financial risk together--the less legal risk is present, because of a decreased possibility of improper conspiratorial or collective behavior. Nevertheless, provider joint ventures and integrated delivery systems face a complex interaction of practical challenges and various legal and regulatory risks. This chapter explores ways in which laws involving fraud and abuse, self-referral, private inurement, corporate practice of medicine, Medicare reimbursement policy, and antitrust enforcement affect typical integrated delivery systems. From a legal standpoint, it might seem logical that the laws regulating health care providers would support and promote integration. A permissive legal environment to foster development of an integrated service network model assumes its development in a delivery system in which networks are at financial risk for the services provided. However, many of the laws and regulations governing integrated provider development were established at a time when joint ventures and other alliances were organizing in a predominantly fee-for-service environment and were generating significant increases in health care costs without producing demonstrable efficiencies or quality enhancements. The results is a fundamental inconsistency in government policy. The demand for collaboration by purchasers and legislatures does not necessarily cause the vast body of health care regulators to revise their concerns that many of the very collaborative activities being encouraged trigger potentially illegal acts and relationships. In a market model, the application of federal and state antitrust laws is especially important. In 1993 and 1994, the Department of Justice and the Federal Trade Commission jointly issued "Statements of Antitrust Enforcement Policy" in a number of areas of provider uncertainty. For integrated delivery systems, the primary focus of antitrust analysis is "market power." Systems without market power (i.e., the ability to force a purchaser to do something that the purchaser would not do in a competitive market) cannot harm consumers and should be free from serious antitrust risk. Where a network may have market power, its activities may be limited only if demonstrable anticompetitive effects outweigh the benefits of the efficiencies claimed by the new arrangement. The chapter concludes that vigorous antitrust enforcement may be required to promote market competition among integrated networks of providers and the managed care plans they serve.

Antitrust Laws↗

Lessons from 20 years of leading a pediatric nephrology program.

The patterns of patient referrals, the guidelines for diagnostic procedures and treatment, and the academic leadership have continued to change in the last two decades. The revolution brought about by molecular biology has dramatically changed the pace and direction of medical research during this period. In addition, the introduction of managed care competition in the past decade has dramatically challenged the practice of medicine. The effects of all these changes on nephrology and some lessons learned from developing and leading a regional pediatric nephrology program will be discussed. The role of the National Institutes of Health in changing research focus will be examined. These observations may be useful to those preparing to meet the challenges of clinical care and research in this competitive era.

Child↗

Does competition by health maintenance organizations affect the adoption of cost-containment measures by fee-for-service plans?

How groups insured by fee-for-service health plans react to increased competition from health maintenance organizations (HMOs) is an unresolved question. We investigated whether groups insured by indemnity plans respond to HMO market competition by changing selected health insurance features, such as deductible amounts, stop loss levels, and coinsurance rates, or by adopting utilization management or preferred provider organization (PPO) benefit options. We collected benefit design data for the years 1985 through 1992 from 95 insured groups in 62 US metropolitan statistical areas. Multivariate hazard analysis showed that groups located in markets with higher rates of change in HMO enrollment were less likely to increase deductibles or stop loss levels. Groups located in markets with higher HMO enrollment were more likely to adopt utilization management or PPO benefit options. A group located in a market with an HMO penetration rate of 20% was 65% more likely to have included a PPO option as part of its insurance benefit plan than a group located in a market with an HMO penetration rate of 15% (p < 0.05). Concern about possible adverse selection effects may deter some fee-for-service groups from changing their health insurance coverage. Under some conditions, however, groups insured under fee-for-service plans do respond to managed care competition by changing their insurance benefits to achieve greater cost containment.

Cost Control↗

The impact of non-IPA HMOs on the number of hospitals and hospital capacity.

Concentration in the hospital market could limit the success of health care reform strategies that rely on managed care to constrain costs. Hospital market capacity also is important because capacity affects both costs and the degree of price competition. Because managed care plans, particularly non-individual practice association (non-IPA) model HMOs, practice a less hospital-intensive style of care, consolidation and downsizing in the hospital market potentially will accompany managed care growth, influencing the long-run effectiveness of managed care cost-containment strategies. Using Standard Metropolitan Statistical Area (SMSA) data from 1982 and 1987, a 10-percentage point increase in non-IPA HMO market share is estimated to reduce the number of hospitals by about 4%, causing an approximate 5% reduction in the number of hospital beds. No statistically significant relationship is found between non-IPA HMO penetration rates and hospital occupancy rates.

Bed Occupancy↗

A tale of four cities: Medicare reform and competitive pricing.

The current payment system for Medicare + Choice (M + C) plans is based on prices calculated from administrative records. This system has been criticized as arbitrary, inefficient, and unfair. Most Medicare reform proposals would replace the current payment system with some form of competitive pricing. However, efforts over the past five years to demonstrate competitive pricing for M + C plans have been blocked repeatedly by Congress, even when the demonstrations were directly responsive to a congressional mandate. In the absence of political support, a demonstration of competitive pricing may be infeasible, and Congress could be forced to take the risky step of implementing broad Medicare reforms with very little information about their effects.

Arizona↗

Empire's recent history, as seen from the Special Advisory Review Panel on Blue Cross.

Empire is a smaller and more financially stable company that no longer has an externally imposed social mission. The board and management of Empire have decided to convert to a for-profit company, to compete in the marketplace. In light of this decision, they also decided to turn over the company's charitable value to a new foundation. Because Empire's board has chosen not to maintain a social mission, the Panel strongly supports its proposal to turn over the full value of the charitable asset. This will allow the asset to be used for purposes that are in keeping with Empire's original social mission. Exactly how this asset should be valued, what form it should take, when it should be turned over, who should control the assets, and what activities it should support are just a few of the many important issues that must be resolved during the next few months. Empire will not and should not remain stagnant during the next few months. Given the rapidly evolving health-care market, Empire's board and management must continue to pursue a market strategy that strengthens the company. However, given the factors discussed earlier--hospital deregulation, the increasingly competitive managed-care market, and other pressures in the health-care environment--it is clear that the road ahead for Empire will not be a smooth one and that the company's financial resurgence is no guarantee of continued stability. Much hard work remains. I am confident that Empire's board and its management will continue to do its part, that the Panel will continue to do likewise.

Blue Cross Blue Shield Insurance Plans↗

Marketing by managing relationships.

As competition increases and funding tightens, hospitals will have to realize that marketing largely is the managing of relationships--relationships between health care consumers and the provider. Prospective payment will make a hospital's fiscal viability increasingly sensitive to volume; stable profitability will depend on a steady level of patient utilization. And to ensure stable utilization, the hospital must create a base of loyal patients. Four marketing strategies can help to build this client base: 1. Create a strong care of essential services focused on the most significant customer needs. 2. Customize relationships by tailoring specific services to specific market segments' special needs. 3. Augment the basic service by offering extras and amenities. 4. Offer price incentives for people to become loyal customers. At least four types of patient loyalty exist, and a hospital should concentrate on fostering one or more types among its patients. Service loyalty occurs when a person always goes to the same provider for the same service. Provider loyalty exists when a person seeks a diversity of related services from the same provider. Family loyalty occurs when an entire family uses a particular provider. Organizational loyalty exists when an entire organization is oriented--through a contract or preferred provider arrangement, for example--toward a specific provider.

Community-Institutional Relations↗

Switzerland.

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Economic Competition↗

Thinking narrow.

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Community Networks↗

Academic health centers on the front lines: survival strategies in highly competitive markets.

The authors describe approaches that five academic health centers (AHCs) have taken to reduce costs, enhance quality, or improve their market positions since the onset of price competition and managed care. The five AHCs, all on the West Coast, were selected for study because they (1) are located in markets that had been highly competitive for the longest time; (2) are committed to all the major missions of AHCs; and (3) own or substantially control their major clinical teaching facilities. The study findings reflect the status of the five AHCs during the fall of 1998. Although some findings may no longer be current (especially in light of ongoing implementation of the Balanced Budget Act of 1997), they still provide insights into the options and opportunities available to many AHCs in highly competitive markets. The authors report on the institutions' financial viability (positive), levels of government support (advantageous), and competition from other AHCs (modest). They outline the study AHCs' survival strategies in three broad areas: increasing revenues via exploiting market niches, reducing costs, and reorganizing to improve internal governance and decision making. They also report how marketplace competition and the strategies the AHCs used to confront it have affected the AHCs' missions. The authors summarize the outstanding lessons that all AHCs can learn from the experiences of the AHCs studied, although adding that AHCs in other parts of the country should use caution in looking to the West Coast AHCs for answers.

Academic Medical Centers↗