Patient selection in the ESRD managed care demonstration

The Centers for Medicare & Medicaid Service's (CMS') end stage renal disease (ESRD) managed care demonstration offered an opportunity to assess patient selection among a chronically ill and inherently costly population. Patient selection refers to the phenomenon whereby those Medicare beneficiaries who choose to enroll or stay in health maintenance organizations (HMOs) are, on average, younger, healthier, and less costly to treat than beneficiaries who remain in the traditional Medicare fee-for-service (FFS) sector. The results presented in this article show that enrollees into the demonstration were generally younger and healthier than a representative group of comparison patients from the same geographic areas.     

Including hospice in Medicare capitation payments: would it save money?

Hospice services received by Medicare risk-based health maintenance organization (HMO) enrollees are paid on a non-capitated basis, creating financial incentives for HMOs to encourage their terminally ill patients to elect hospice. Using Medicare administrative records for 1998, we found that hospice enrollment in the last month of life was significantly higher among HMO enrollees than among beneficiaries in fee-for-service (FFS). However, low mortality rates among HMO enrollees produced similar population-based rates of hospice use in the HMO and FFS sectors. Simulations showed that including hospice care under capitation payments in July 1998 would have produced very small savings for Medicare.     

The first 3 years of Medicare prospective payment: an overview.

This article provides a synopsis of the available evidence on the impact of the Medicare prospective payment system (PPS) for hospitals over the first 3 years of its implementation. The impact of PPS on hospitals, Medicare beneficiaries, post-hospital care, other payers for inpatient hospital services, other health care providers, and Medicare program operations and expenditures is examined.     

Variations in patterns of care and outcomes after acute myocardial infarction for Medicare beneficiaries in fee-for-service and HMO settings

OBJECTIVE: To assess revascularization and mortality after acute myocardial infarction (AMI) for all Medicare patients in fee-for-service (FFS) and health maintenance organization (HMO) settings in California. DATA SOURCES/STUDY SETTING: Hospital discharge abstract and death certificate data linked with Medicare enrollment files for patients aged 65 and over with Medicare coverage (69,040) discharged from a California-licensed hospital in 1994-1996. STUDY DESIGN: Risk-adjusted results were assessed for HMOs and FFS, as well as for FFS beneficiaries from areas served by each plan. DATA COLLECTION/EXTRACTION METHODS: Risk models were based on all sampled patients. The HMO patients were aggregated into 17 pseudoplans: 5 individual plans, 4 large plans split geographically (10 observations), and 2 "pseudoplans" of small HMOs. Observed versus expected 30-day mortality rates, lengths-of-stay (LOS) during the index hospitalization and any transfers, revascularization (coronary artery bypass graft [CABG] surgery and/or percutaneous transluminal coronary angioplasty [PTCA]) during the index hospitalization or 30 days after admission, were calculated for each pseudoplan. PRINCIPAL FINDINGS: Risk-adjusted death rate was slightly higher in FFS than in HMO settings (p < .01 with one risk adjustment model, n.s. with another). Three pseudoplans had significantly (p < .01) better than expected mortality rates. One pseudoplan was significantly worse (p < .05) with one risk adjustment model but not the other. The LOS and revascularization rates varied widely, but were not associated with outcomes. Plans with among the best results had the lowest LOS and revascularization rates. These pseudoplans were less likely to have their patients initially admitted to a hospital with revascularization capability, but the hospitals they used had higher CABG volumes. Even if CABG facilities were available during the index admission, in these plans with better than expected mortality rates, revascularization was often postponed or carried out elsewhere. CONCLUSIONS: For Medicare patients having an AMI in the mid-1990s in California, risk-adjusted outcomes were no different, or slightly better on average, for those in HMOs than in FFS. Not all plans performed equally well, so understanding what leads to differences in quality is more important than simple comparisons of HMOs versus FFS.     

Hospital cost shifting revisited: new evidence from the balanced budget act of 1997

This paper analyzes hospital cost shifting using a natural experiment generated by the Balanced Budget Act (BBA) of 1997. I find evidence that urban hospitals were able to shift part of the burden of Medicare payment reduction onto private payers. However, the overall estimated degree of cost shifting is small and varies according to a hospital’s share of private patients. At hospitals where Medicare is a small payer relative to private insurers, up to 37% of BBA cuts was transferred to private payers through higher payments. In contrast, hospitals with greater reliance on Medicare were more financially distressed, as these hospitals saw large BBA cuts but were limited in their abilities to cost shift.     

Hospital volume responses to Medicare's Outpatient Prospective Payment System: Evidence from Florida

Effective in 2000, Medicare's Outpatient Prospective Payment System (OPPS) sets pre-determined reimbursement rates for hospital outpatient services, replacing the prior cost-based methods of reimbursement. Using Florida outpatient discharge data, we study the effect of OPPS on hospital outpatient volume. We find that on average Medicare rate cuts either decreased or had no significant effect on Medicare volume, but increased private fee-for-service (FFS) volume. We also find that responses vary with the hospital's "exposure" to Medicare payment changes, where exposure is measured as the baseline Medicare patient share. Compared to less exposed hospitals, highly exposed hospitals responded with larger increases in private FFS volume and with smaller decreases (in some cases, even increases) in Medicare volume when payment rates fell. Our results are consistent with provider demand inducement.     

Do Medicare Advantage enrollees tend to be admitted to hospitals with better or worse outcomes compared with fee-for-service enrollees?

The hospitals selected by or for Medicare beneficiaries might depend on whether the patient is enrolled in a Medicare Advantage (MA) plan. A theoretical model of profit maximization by MA plans takes into account the tradeoffs of consumer preferences for annual premium versus outcomes of care in the hospital and other attributes of the plan. Hospital discharge databases for 13 states in 2006, maintained by the Agency for Healthcare Research and Quality, are the main source of data. Risk-adjusted mortality rates are available for all non-maternity adult patients in each of 15 clinical categories in about 1,500 hospitals. All-adult postoperative safety event rates covering 9 categories of events are calculated for surgical cases in about 900 hospitals. Instrumental variables are used to address potential endogeneity of the choice of a MA plan. The key findings are these: enrollees in MA plans tend to be treated in hospitals with lower resource cost and higher risk-adjusted mortality compared to Fee-for-Service (FFS) enrollees. The risk-adjusted mortality measure is about 1.5 percentage points higher for MA plan enrollees than the overall mean of 4%. However, the rate of safety events in surgical patients favors MA plan enrollees—the rate is 1 percentage point below the average of 3.5%. These discrepant results are noteworthy and are plausibly due to greater discretion by the health plan in approving patients for elective surgery and as well as selecting hospitals for surgical patients. Emergency patients are generally excluded for the safety outcome measures. In addition, the current mortality measures may not adequately represent all surgical patients. Such caveats should be prominently highlighted when presenting comparative data. With that proviso, the study justifies informing Medicare beneficiaries about the mortality and safety outcome measures for hospitals being used by a MA plan compared to hospitals used by FFS enrollees.     

Integrating acute and long-term care for high-cost populations

The inadequacies of our fragmented acute and long-term care financing and delivery systems have been well recognized for many years. Yet over the past two decades only a very small number of "boutique" initiatives have been able to improve the financing and the delivery of care to chronically ill and disabled populations. These initiatives share most of the following characteristics: prepaid, risk-adjusted financing; integrated Medicare and Medicaid funding streams; a flexible array of acute and long-term benefits; well-organized, redesigned care delivery systems that tailor these benefits to individual need; a mission-driven philosophy; and considerable creativity in engaging government payers. The experience of these "boutiques" illustrates both the obstacles to, and the opportunity for, meaningful, widespread care delivery reform for vulnerable chronically ill populations.     

Strategic responses by hospitals to increased financial risk in the 1980s.

OBJECTIVE. This research addresses the following types of responses by hospitals to increased financial risk: (a) increases in prices to privately insured patients (testing separately the effects of risk from the effects of "cost-shifting" that depends on level of Medicare payment in relation to case mix-adjusted cost); (b) changes in service mix offered and selectivity in acceptance of patients to reduce risk; and (c) efforts to reduce variation in resource use for those patients admitted. DATA SOURCES. The database includes a national panel of over 400 hospitals providing information from patient discharge abstracts, hospital financial reports, and county level information over the period 1980-1987. STUDY DESIGN. Econometric methods suitable to panel data are implemented, with tests for pooling, hospital-specific fixed effects, and possible problems of selection bias. PRINCIPAL FINDINGS. The prices paid by private insurers to a particular hospital were affected by the changes in risk imposed by Medicare prospective payment, the generosity of Medicare payment, state rate regulation, and ability of the hospital to bear risk. The risk-weighted measure of case mix did not respond to changes in payment policy, but other variables reflecting the management of care after admission to reduce risk did change in the predicted directions. CONCLUSIONS. Some of the findings in this article are relevant to current Medicare policies that involve risk-sharing, for instance, special allowances for "outlier" patients with unusually high cost, and for sole community hospitals. The first type of allowance appears successful in preserving access to care, while the second type is not well justified by the findings. State rate regulation programs were associated not only with lower hospital prices but also with less risk reduction behavior by hospitals. The design of regulation as a sort of risk-pooling arrangement across payers and hospitals may be attractive to hospitals and help explain their support for regulation is some states.     

Access and use of health services by chronically mentally ill Medicaid beneficiaries

This article has two objectives: to quantify the access and utilization of services received by chronically mentally ill Medicaid recipients, and to compare service utilization and access under prepayment and fee-for-service (FFS) payment. The study setting is Hennepin County (Minneapolis), Minnesota, where 35 percent of Medicaid recipients were randomly assigned to receive services from prepaid plans. An algorithm was developed to identify recipients with chronic mental illness, resulting in 739 study participants, split approximately evenly between prepayment and FFS Medicaid. Data were collected through in-person surveys at baseline, and after 1 year. We found slight improvements in the majority of access measures studied and no significant decreases in the use of inpatient or outpatient services for enrollees in prepaid health plans. The results support efforts to expand the use of prepaid health plans to meet the needs of non-institutionalized chronically mentally ill Medicaid beneficiaries.     

Multiple payers,commonality and free-riding in health care: Medicare and private payers

Managed health care plans and providers in the US and elsewhere sell their services to multiple payers. For example, the three largest groups of purchasers from health plans in the US are employers, Medicaid plans, and Medicare, with the first two accounting for over 90% of the total enrollees. In the case of hospitals, Medicare is the largest buyer, but it alone only accounts for 40% of the total payments. While payers have different objectives and use different contracting practices, the plans and providers set some elements of the quality in common for all payers. In this paper, we study the interactions between a public payer, modeled on Medicare, which sets a price and takes any willing provider, a private payer, which limits providers and pays a price on the basis of quality, and a provider/plan, in the presence of shared elements of quality. The provider compromises in response to divergent incentives from payers. The private sector dilutes Medicare payment initiatives, and may, under some circumstances, repair Medicare payment policy mistakes. If Medicare behaves strategically in the presence of private payers, it can free-ride on the private payer and set its prices too low. Our paper has many testable implications, including a new hypothesis for why Medicare has failed to gain acceptance of health plans in the US.     

Unintended consequences of prospective payment: erosion of hospital financial position and cost shifting

The reform of the Medicare hospital reimbursement system proposed by HCFA may create incentives for hospitals to transfer costs to other payers, thus reducing the financial incentives to increase efficiency.     

How does managed care manage the frail elderly? The case of hospital readmissions in fee-for-service versus HMO systems

OBJECTIVES: This study examined whether hospital readmissions varied among the frail elderly in managed care versus fee-for-service (FFS) systems. SETTING AND PARTICIPANTS: Random sample of 450 patients, aged 65 and over, from a large vertically integrated health care system in San Diego, California. Participants were receiving physician-authorized home health and survived and 18-month follow-up period. MAIN OUTCOME MEASURES: Multiple logistic regression analyses were used to conduct comparisons of readmissions and preventable readmissions by plan type. Two methods to identify preventable readmissions were developed, one based on a computerized algorithm of service use patterns, and another based on blind clinical review. RESULTS: The odds of having a preventable hospital readmission within 90 days of an index admission were 3.51 (P = 0.06) to 5.82 (P = 0.02) times as high for Medicare HMO enrollees compared to Medicare FFS participants, depending on the method used to assess preventability. Readmission patterns were similar for Medicare HMO enrollees and FFS study participants dually enrolled in Medicare and Medicaid. CONCLUSION: In this group of frail elderly Medicare beneficiaries, those enrolled in an HMO were more likely to have a preventable hospital readmission than those receiving care under FFS. These results suggest that policies promoting stringent approaches to utilization control (e.g., early hospital discharge, reduced levels of post-acute care, and restricted use of home health services) may be problematic for the frail elderly.     

Hospitals respond to Medicare payment shortfalls by both shifting costs and cutting them, based on market concentration

The coverage expansions planned under the Affordable Care Act are to be financed in part by slowing Medicare payment updates to hospitals, thereby reigniting the debate over whether low prices paid by public payers cause hospitals to increase prices to private insurers--a practice known as cost shifting. Recently, the Medicare Payment Advisory Commission (MedPAC) proposed an alternative explanation of hospital pricing and profitability that could be used to support policies that pressure hospitals to reduce overall costs rather than to only raise prices. This study evaluated the cost-shift and MedPAC perspectives using 2008 data on hospital margins for 30,514 Medicare and privately insured patients undergoing any of seven major procedures in markets where robust hospital competition exists and in markets where hospital care is concentrated in the hands of a few providers. The study presents empirical evidence that, faced with shortfalls between Medicare payments and projected costs, hospitals in concentrated markets focus on raising prices to private insurers, while hospitals in competitive markets focus on cutting costs. Policy makers need to examine whether efforts to promote clinical coordination through provider integration may interfere with efforts to restrain overall health care cost growth by restraining Medicare payment rates.     

Medicare Managed Care Spillovers and Treatment Intensity

Evidence suggests that the share of Medicare managed care enrollees in a region affects the costs of treating traditional fee‐for‐service (FFS) Medicare beneficiaries; however, little is known about the mechanisms through which these ‘spillover effects’ operate. This paper examines the relationship between Medicare managed care penetration and treatment intensity for FFS enrollees hospitalized with a primary diagnosis of AMI. I find that increased Medicare managed care penetration is associated with a reduction in both the costs and the treatment intensity of FFS AMI patients. Specifically, as Medicare managed care penetration increases, FFS AMI patients are less likely to receive surgical reperfusion and mechanical ventilation and to experience an overall reduction in the number of inpatient procedures. Copyright © 2015 John Wiley & Sons, Ltd.     

Enrollee health status under Medicare risk contracts: an analysis of mortality rates.

Previous studies comparing the health status of Medicare beneficiaries enrolled under HMO risk contracts to that of Medicare beneficiaries in fee-for-service (FFS) have generally focused on demonstration projects conducted before 1985. This study examines mortality rates in 1987 for approximately 1 million aged Medicare beneficiaries enrolled in 108 HMOs. We estimated adjusted mortality ratios (AMR) for each HMO and across all HMOs, by dividing the actual number of deaths among HMO enrollees by the "expected" number of deaths. The expected number of deaths was based on death rates among local FFS populations, adjusting for age, sex, Medicaid buy-in status, and institutional status. The AMR for all HMO enrollees pooled together was 0.80. For persons newly enrolled in 1987, the AMR was 0.69; in general, AMRs were higher for beneficiaries who had been enrolled for longer periods of time. Among individual HMOs, none exhibited an AMR substantially above 1.00. Regression analysis indicated lower AMRs for staff model HMOs than for either IPA or group models. Low mortality among Medicare HMO enrollees is consistent with favorable selection or with improvements in the health status of enrollees due to better access or quality of care in HMOs. In either case, health status differences between HMO enrollees and FFS beneficiaries have implications for the appropriateness of Medicare's Adjusted Average Per Capita Cost (AAPCC) payment formula for HMOs.     

The quality of ambulatory care in Medicare health maintenance organizations.

The quality of ambulatory care received by Medicare recipients who enrolled in health maintenance organizations (HMOs) was compared to the care received by fee-for-service (FFS) Medicare recipients, in a quasi-experimental, non-randomized design. Both samples were drawn from the four major geographic areas in the country, and included two types of HMO practices: staff/group models, and independent practice associations (IPAs). A panel of expert physicians developed criteria for evaluating ambulatory care, and medical record abstractions using these criteria were performed on 1,590 outpatient records: 777 FFS and 813 HMO (441 staff/group, 372 IPA). While individual items of medical histories and physical examinations were performed most often for staff/group HMO patients and least often in FFS patients, odds ratios (OR) for performance in staff/group HMO patients were particularly large for health maintenance items: tonometry (OR = 8.4), mammography (OR = 2.7), pelvic examination (OR = 5.3), rectal examination (OR = 2.9), fecal occult blood test (OR = 3.3). The results suggest that recommended elements of routine and preventive care are more likely to be performed for Medicare enrollees in staff/group HMOs than in FFS settings.     

Breast cancer detection and outcomes in a disability beneficiary population

Women with disabilities may be at higher risk of late-stage breast cancer. Using the 1991-93 Medicare-Surveillance Epidemiology and End Results (SEER)-linked data set, the authors compared stage at diagnosis and mortality, for Social Security Disability Insurance (SSDI)-qualifying women and similarly aged non-SSDI qualifying women. Disabled patients were diagnosed at a later American Joint Committee on Cancer stage. Disabled patients had higher all-cause mortality rates but had similar breast cancer-specific mortality. Disabled women belonging to Medicare HMOs tended to have earlier stage diagnosis and better survival compared to Medicare fee-for-service (FFS) insurance. In conclusion, disabled patients tended to be diagnosed with breast cancer at a later stage and to have higher mortality. These findings were more pronounced in Medicare FFS than in Medicare HMOs.     

Can cost shifting continue in a price competitive environment?

Both Medicare and Medicaid are reducing payments to hospitals, and there is widespread concern that hospitals may respond by increasing prices to privately insured patients. Theoretical models of hospital behaviour have ambiguous predictions as to whether, and under what circumstances, hospitals will shift costs to private payers. This paper extends previous theoretical models and then tests empirically using data from California for the 1983-1991 period, a time of increasingly intense price competition. Hospitals did increase their prices to private payers in response to reductions in Medicare rates; they had far smaller and generally insignificant responses to changes in Medicaid reimbursement. Hospital ownership and the competitiveness of the hospital market both affected this behaviour, but there was no significant change over time. The results suggest the need to broaden our models of hospital behaviour to 'embed' them in their local markets.