Is the Impact of Managed Care on Hospital Prices Decreasing?
- Presenter:
Chair: Frank Sloan; Discussant: Kathleen Carey Mon June 5, 2006 13:45-15:15 Room 332
Rationale: The introduction of managed care was followed by a sharp slow down in the growth of healthcare spending. However, recently expenditures have surged, raising the question of whether the impact of managed care has weakened. Previous research finds a strong inverse relationship between the level of concentration and prices in hospital markets under managed care. Two widely discussed hypotheses about why the effects of managed care may be decreasing are: 1) On the demand side of the market, relaxation of constraints on provider choice by Managed Care Organizations (MCOs) is reducing ability to steer patients and engage in price sensitive shopping to win discounts, weakening the relationship between concentration and price; and 2) on the supply side, downsizing and provider consolidation have led to increased market concentration, enabling providers to exercise growing countervailing market power. Objective: To examine how interactions between demand and supply factors have affected prices for hospital inpatient care for privately insured patients. Methods and Data: This research uses multiple regression analysis and pooled cross section time series data for Florida and California to test hypotheses regarding the effects of changes in concentration and the price sensitivity of shopping on hospital prices. Florida and California are selected for study because of long histories with managed care and data availability. Data are drawn from state and AHA hospital data files, the ARF, and unique data collected by Co-PI Jack Zwanziger on MCO network size. Pricing patterns are compared in five time periods: i) 1983 before the growth of managed care; ii) 1990, after the initial growth of managed care, but early in the process of hospital consolidation; iii) 1995 as MCO began to reduce restrictions on consumer choice of providers; iv) at the end of the 1990s (1999); and v) using the most recent data available (2001). To disentangle the effects of supply and demand side changes, two questions are considered. First, what would have happened to prices in more recent periods if measures of hospital market concentration and/or factors associated with the price sensitivity of shopping had remained fixed at previous levels? Second, have the magnitudes of coefficients associated with measures of concentration and/or the price sensitivity changed? Results: Our initial results indicate that that there was a growing inverse relationship between concentration and price in hospital markets until 1999, but between 1999 and 2001 this relationship plateaued. At the same time, concentration is increasing in many markets, consistent with a reduced ability to win price concessions. We are continuing to explore the possible effects of changes in constraints on consumer choice and the price sensitivity of shopping. Disclosure Information: This research is supported by a grant from the Robert Wood Johnson Foundation.
