The Impact of TennCare on Hospital Efficiency
- Presenter:
Chair: Ryan Mutter; Discussant: Michael Rosko Mon June 5, 2006 17:15-18:45 Room 213
On January 1, 1994, Tennessee implemented an innovative new health care reform plan called TennCare. The objective of TennCare was to extend health coverage to both individuals in the Medicaid population and people deemed uninsured or uninsurable. A decade later, TennCare still covers the Medicaid-eligible, individuals who are uninsurable as determined by an insurance company, and children whose individual family incomes are below 200% of the federal poverty level. TennCare services have been and continue to be offered through managed care organizations.
Several key facts point to the impact of TennCare on Tennessee hospitals. Between 1993 and 2000, occupancy rates in Tennessee hospitals fell from 47.2 percent to 42.2 percent, and the average length of stay fell from 6.1 days to 5.0 days (Tennessee Department of Health, 2002). In addition, there was a reduction in care disbursed to Medicaid patients in safety net hospitals and an increase in care disbursed to TennCare patients in non-safety net hospitals (Conover and Davies, 2000). Finally, a study sponsored by the Tennessee Hospital Association found that TennCare provided $0.58 for every dollar of inpatient care provided by hospitals (Meyer and Blumenthal, 1996.) Given the dual financial pressures caused by TennCare and the Balanced Budget Act of 1997, questions remain regarding how hospitals in Tennessee have responded to the reductions in reimbursement.
The objective of this study is to consider the effect of TennCare on the efficiency of hospitals operating in Tennessee. Toward that end, we will use information for hospitals operating in Tennessee from 1990-2001. The data allow us to examine efficiency prior to TennCare’s implementation (1990-1993), during the initial years of TennCare (1994-1996), and in subsequent years (1997-2001). Using the complete panel, we will use a multiple-output stochastic frontier approach to simultaneously examine the level of technical efficiency and the effect of key variables on technical efficiency in Tennessee hospitals. This method is appealing as it allows us to consider determinants of cost efficiency, where two groups of explanatory variables are used: 1) traditional measures of outputs, input prices, teaching status, etc. and 2) explanatory variables thought to influence efficiency, including binary variables for the pre-TennCare and post-TennCare periods described above, the proportion of TennCare patient days in the hospital, ownership type, etc. Our examination will allow us to determine the extent to which TennCare has affected hospital efficiency. In addition, we will explore the relationship between hospital inefficiency and characteristics of Tennessee hospitals.
References
Conover, Christopher J., and Hester H. Davies. The Role of TennCare in Health Policy for Low-Income People in Tennessee. Occasional Paper Number 33, The Urban Institute, February 2000.
Meyer, Gregg S., and David Blumenthal. “TennCare and Academic Medical Centers: The Lessons from Tennessee.” Journal of the American Medical Association 276 (9, September 4): 672-676.
Tennessee Department of Health, Health Statistics and Research. Joint Annual Report of Hospitals. September 2002.
