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PubMed1992

Pricing and imperfections in the medical care marketplace.

To summarize: Some economic literature treats price determination in the medical marketplace as if it were similar to that of a standard marketplace. It seems more realistic to treat it as an outcome of one or more administered price systems. Such systems, may be formula-based, as is common in the United States (for example, the Prospective Payment System), or not (for example, a negotiated budget). In either case, however, the actual price is likely to deviate from the ideal price in part for lack of information. Plausible deviations can explain some observed phenomena. The inability to attain the ideal price, together with heterogeneity of patients, may also explain why in practice we observe several different bases of provider payment; for example, fee-for-service, capitation, and salary. All of these may be attempts to arrive at second best prices. Ignoring any welfare loss from raising revenue and assuming those with the largest marginal social valuation for the service are served first, errors in price setting lead to a welfare loss that is approximately proportional to the square of the deviation from the ideal price. If price setting is unbiased (i.e., errors have a mean of zero), the welfare loss is approximately proportional to the variance of the error in setting price. If price setting is biased, welfare loss is approximately proportional to the variance plus the square of the bias. Taking account of welfare loss from raising revenue may make monopsonistic pricing optimal. If one uses multiple bases of payment, for example both fee-for-service and capitation, one can average the errors that arise in each basis. This creates a gain from using a mixed system, in addition to those gains cited by other analysts, who focus on the method of reimbursement assuming what, in the present context, could be termed error-free price effects. The gains from averaging errors would appear available in any administered price system and are compatible with a wide variety of models of provider behavior.

Delivery of Health Care↗
PubMed1992

Consumer information, price, and nonprice competition among hospitals.

The results of the empirical analysis in this paper indicate that broadly defined hospital quality declines in more concentrated markets. The direction of the effect of concentration on hospital charges is smaller and the direction is less clear. Prices are little, if any, lower in more concentrated markets. Hospital price-cost margins are higher in more concentrated markets. Higher concentration discourages price competition. The data do not support the increasing monopoly theory. Further, since hospital price-cost margins do not appear to remain constant, we must reject the redundant resources theory as well, though its stress on nonprice competition rings true. The empirical results are consistent with the traditional antitrust theory. In addition, consumer information plays a surprisingly important role. Consumer information is important in explaining hospital prices, and less important in hospital quality. Consumers are not passive; they do play a role in hospital choice. It is likely that more recent innovations in health insurance will increase consumer awareness. With an increase in consumer copayments, and more active insurer contracting, it is likely that future hospital competition is more likely to stress price, and future antitrust activity could lead to price reductions in addition to declining hospital price-cost margins.

Antitrust Laws↗
PubMed1992

Political economy of hospital financing.

In this paper we tried to explain the recent reform in the law of financing German hospitals. We first described five basic types of hospital payment systems which were available as alternatives to the decision on the reform in the early 1980s. In the next step we identified five concerned interest groups whose actions certainly had a great influence on the legislative process. We proposed a simple theoretical model to examine how these groups of actors evaluated the different payment systems. After deriving a preference ranking for each actor, we confronted these rankings with the respective revealed preferences, which could be inferred from their official statements towards the reform. It could also be shown that quite often the actual statements deviated strongly from the theoretically expected preferences because all groups were engaged in a highly interactive lobbying game. In the last step we compared these preferences to the actual outcome of the legislation and found that all groups have at least partly realized their targets. So in contrast to the typical results of interest group theory, the differences in bargaining power do to appear to have led to a solution which unambiguously benefits some groups of actors at the expense of others. It has to be repeated that the empirical analysis was limited to statements from the interest groups in the pre-legislative stage of the whole process. From this point the most promising procedure would appear to be the step-by-step analysis of the statements of the groups during the legislative process as well. This would give the researcher a chance to evaluate whether or not the theoretical hypotheses can be confirmed, whether or not our simple theoretical model is an appropriate way to understand the behavior of the affected groups and what was finally responsible for the outcome of the legislation. Therefore this paper should be seen as a first attempt to apply the framework of public choice theory to the field of health care financing and to demonstrate that much more research is needed.

Budgets↗
PubMed1992

A pooled cross-section analysis of the health care expenditures of the OECD countries.

This paper has two purposes. The first, empirical purpose is to estimate and evaluate the effects of aggregate income, institutional and socio-demographic factors on health care expenditures in the OECD countries. The second purpose is methodological, and comprises assessment of temporal instability, the choice of functional form, and misspecification of the estimated relationships. Data compiled over three years (1974, 1980 and 1987) from 19 OECD countries are used in a pooled cross-section regression analysis. Like previous studies, this one concludes that aggregate income measured by Gross Domestic Product per capita is the statistically most important factor in cross-national variation in health care expenditures, and that the aggregate income elasticity exceeds one. However, the data analyzed in this study also show some evidence that public financing of health care services is associated with lower expenditures per capita, and that countries with fee for service as the dominant form of remuneration have higher expenditures. The examined relationships appear to be temporally stable over the three years except for upward shifts, and there is no indication of statistical misspecification. This does not necessarily imply a correct specification, and we do note the presence of measurement errors in some of the variables. Moreover, the selected log-linear functional form appears to be non-optimal according to a likelihood criterion, and is rejected against a quadratic form. Based on the analyses from this study the results do not appear to be sensitive to use of the quadratic form specification.

Europe↗
PubMed1992

The impact of utilization review on costs and utilization.

This paper examines the performance of a utilization review program using data from Aetna's utilization review (UR) customers compared to a representative sample of its customers which had no utilization review during the study period. Statistical adjustments were made for the utilization management status, employee demographics, plan benefits, group size, year effects and seasonality. The study period covered from the first quarter of 1987 through the last quarter of 1988. The data suggest that UR reduces overall medical expenses by 4.4 percent, and inpatient expenses by 8.1 percent after a year of experience, largely by reducing length of stay.

Ambulatory Care↗
PubMed1992

Non-price allocative procedures: Scottish solutions to a National Health Service problem.

Except for a few NHS services, the allocation of resources depends on administrative-cummedical decision-making. At one level the Scottish Home and Health Department allocates funds between the fifteen health boards, at another level clinicians allocate resources between patients. We examine experience at a level intermediate between these two, and focus on the provision of two services--diagnostic radiology and ECG--at health centres. A benefit: cost framework is used to test three hypotheses about how the two services have been allocated. The three hypotheses relate to the benefits from provision and are characterised as 'medical excellence', 'equity' and 'market' orientated. Data on health centre list size and distance to alternative provision are used to test the hypotheses. The conclusions are as follows. The equity and market models are equally valid descriptions for ECG, a service provided by general practitioners. A combination of the equity and/or market model with the medical model is a valid description for diagnostic radiology, a service provided by health boards and the Scottish Home and Health Department.

Catchment Area, Health↗
PubMed1992

Targeted estrogen/progesterone replacement therapy for osteoporosis: calculation of health care cost savings.

Osteoporosis is a crippling affliction in which bone mass decreases, making it more susceptible to fracture. In postmenopausal women it presents most often as a hip, spinal, or forearm fracture. Adult women face a 15% lifetime risk of a hip fracture, and the annual costs of hip fractures alone are estimated at $7.3 billion in the United States. Since the 1970s, estrogen/progestogen therapy has been recognized as an effective intervention that reduces the risk of fractures. Recently, the development of methods for accurately determining bone mass and thus helping to predict bone fracture risk has made this intervention attractive for use in a targeted population. This report analyzes the health care costs and calculates the cost savings of coupling bone mineral density screening at the time of menopause with long-term estrogen/progestogen therapy for those most at risk for developing fractures. The model assumes that a cohort of 100,000 American white women, aged 50, are screened for bone mineral density and that 90% of the high-risk group (density less than 0.85 g/cm3) and 70% of the mid-risk group (density between 0.85 and 1.00 g/cm3) elect to take hormone replacement therapy for 15 years. Based on calculations of the costs of screening and hormone replacement therapy, and the savings in cost of treatment and lost productivity from reduced fractures, it is estimated that the present value of savings in cost of illness for this cohort over a 40-year period is $5.1 million.(ABSTRACT TRUNCATED AT 250 WORDS)

Bone Density↗