Effects of Price Competition and Increases in Managed Care on Outcomes Kevin Volpp, M.D., Ph.D R. Tamara Konetzka, Ph.D. Julie Sochalski, Ph.D. Jingsan Zhu, M.B.A. Funding support from Doris Duke Charitable Foundation and VA HSR&D

HMOs have grown rapidly throughout the United States

Policy Context California passed selective contracting legislation allowing price competition in 1983 – led to rapid growth of managed care Price competition reduces rate of increase in hospital costs, profit margins, services to uninsured Little is known about effects of competition on quality of care

Revenue per discharge increased more slowly in markets with greater price competition

Important Policy Questions Did price competition worsen outcomes? Managed care organizations have economies of scale in shopping for better quality providers However, growth of managed care shrinks price-cost margins Does price or quality competition predominate? Are effects of increased managed care growth similar in more and less competitive hospital markets? Did outcomes worsen to larger degree for the uninsured?

Data used California’s Office of Statewide Health Planning and Development (OSHPD) hospital discharges linked to State death certificates OSHPD financial data Sample: 1991 and 2001 patients with principal diagnosis of AMI, stroke, hip fracture, GI bleed Short-term acute-care hospitals. Final sample size: 316,883 discharges from 507 hospitals

Calculation of hospital markets Fixed radius used to define hospital markets Hospital market concentration, managed care penetration calculated from discharge data Price Competition = interaction between hospital market concentration and growth of managed care. Compare main effect of hospital market concentration, effects of increased managed care penetration in more and less competitive markets

Empirical Approach Long difference patient-level linear probability models predicting 30-day all-location mortality Adjustments for: Patient characteristics - age, gender, race, payor, Elixhauser comorbidities Common intertemporal trends Hospital factors - hospital fixed effects Effects of hospital market concentration, increases in managed care in more and less competitive markets from

30-day mortality rates (all 4 conditions) changed at similar rates in more and less competitive markets

Patients in more competitive hospital markets generally fare better *p-value < 0.10 **p-value < 0.05 ***p-value <0.01 ***

Among insured, growth in managed care generally beneficial but less so in more competitive markets *** * # *p-value < 0.10 **p-value < 0.05 ***p-value <0.01 # p-value < 0.05 for difference between high/low competition

Among uninsured, effects of increases in managed care more ambiguous **p-value < 0.05 ***p-value <0.01 ##p-value < 0.01 for difference between high/low competition *** ##

Conclusions Among the insured, increases in managed care penetration lowered mortality in less competitive markets but less beneficial in more competitive markets Suggests quality competition dominates less competitive hospital markets but price competition bigger factor in more competitive hospital markets Among the uninsured, effects are more ambiguous. No clear evidence that the uninsured fared worse Growth in managed care appears to have larger effect on mortality than hospital market concentration

Limitations Generalizability to other states, other measures of quality of care?

Policy Implications It appears that savings on hospital care in California have been achieved without worsening quality Price competition improves quality of care for patients in less competitive areas but patients in more competitive hospital markets fare relatively worse The key question is whether these findings hold true for other conditions

Positive and negative effects on AMI mortality were greatest from ## *** ** Sig. difference from 0: *p<.10, **p<.05, ***p<.01; Sig. difference high comp vs. low comp: #p<.10, ##p<.05 Findings for 1990s similar using 30-day all-location mortality