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Date
Jun
06
2006

Effects of Financial Stress from Price Competition on Hospital Quality of Care

Presenter:

Kevin Volpp

Authors:

Kevin Volpp, R. Tamara Konetzka, Julie Sochalski, Jingsan Zhu

Chair: Gloria Bazzoli; Discussant: Leemore Dafny Tue June 6, 2006 15:30-17:00 Room 325

Hospital competition in the United States shifted from a quality/amenity basis to a price basis with the growth of managed care in the 1980s and 1990s. However, a significant managed care backlash starting in the mid-to-late 1990s may have blunted its effectiveness in reducing the rate of increase in hospital costs. This may have altered the balance between price and quality competition in hospitals over time. Preliminary analysis using hospital financial data from California showed that while from 1991-96 the mean annual rate of increase in hospital expenses was lower in markets with higher managed care penetration, these effects are reversed from 1997-2001. The difference in the rate at which expenses increased between high and low competition areas narrowed over these two time periods as well, suggesting that managed care no longer effectively facilitated price competition between hospitals during this later period. To assess the impacts on quality of the change in the effects of managed care penetration (MCP) in influencing hospital competition, we use annual hospital financial and patient-level discharge data from 1991 through 2001 linked with state death certificates from California to examine effects on 30-day mortality for a group of 4 common and severe conditions (AMI, stroke, GI bleed, hip fracture) as well as failure to rescue (death after post-operative complications) during two different time periods (1991-96, 1997-2001). Since managed care is expected to have a stronger effect in more competitive areas, our design incorporates interaction effects between market competitiveness and MCP. We control for baseline costs and quality in more competitive areas and adjust for differences in patient severity. We focus on testing whether the nature of competition between hospitals shifts from favoring price competition (1991-96) to greater emphasis on quality competition (1997-2001). We use long-difference regressions to examine the effect of changes in MCP on outcomes and the effects of changes in MCP in more and less concentrated hospital markets. Preliminary evidence suggests that increases in managed care penetration reduce mortality risk overall but to a lesser degree in more competitive markets. Hospital market concentration is also associated with better mortality outcomes. Next steps will include testing for differences in the relationship between managed care and hospital market concentration with outcomes in different time periods. In addition, we will explore effects by payer group and whether potentially more vulnerable populations, such as the uninsured, were adversely affected to a greater degree than the insured in terms of either the quality or quantity of services received. This work is important to developing a better understanding of how the nature of hospital competition has evolved in conjunction with significant changes in recent years in the effects of managed care. These results will contribute to debates on payment policy, cost containment, and quality improvement efforts.

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