Bargaining and the provision of health services

We model and compare the bargaining process between a purchaser of health services, such as a health authority, and a provider (the hospital) in three plausible scenarios: (a) activity bargaining: the purchaser sets the price and activity (number of patients treated) is bargained between the purchaser and the provider; (b) price bargaining: the price is bargained between the purchaser and the provider, but activity is chosen unilaterally by the provider; (c) efficient bargaining: price and activity are simultaneously bargained between the purchaser and the provider. We show that: (1) if the bargaining power of the purchaser is high (low), efficient bargaining leads to higher (lower) activity and purchaser’s utility, and lower (higher) prices and provider’s utility compared to price bargaining. (2) In activity bargaining, prices are lowest, the purchaser’s utility is highest and the provider’s utility is lowest; activity is generally lowest, but higher than in price bargaining for high bargaining power of the purchaser. (3) If the purchaser has higher bargaining power, this reduces prices and activity in price bargaining, it reduces prices but increases activity in activity bargaining, and it reduces prices but has no effect on activity in efficient bargaining.     

Contracting for quality: does length matter?

OBJECTIVES: To examine whether longer-term contracts for health services will shift attention away from concern for finance and activity levels and towards the achievement of better quality services. METHODS: Analysis of 288 contracts from the British National Health Service (NHS) and 12 semi-structured interviews with staff from provider (NHS hospital trusts) and purchaser (health authorities) organisations. RESULTS: No relationship was found between the duration of a contract and the duration of service specifications or quality frameworks. The annual contracting cycle is concerned largely with ensuring that all parties stay within activity targets and financial constraints, and this is unlikely to be affected by a shift to longer-term contracts. The setting of standards and initiatives to improve quality is largely independent of the contracting process and the duration of contracts, and relies on relationships rather than contracts. CONCLUSIONS: It is optimistic to expect longer-term contracts automatically to produce a greater focus on quality and the incentives needed to ensure that improvements in quality are delivered. However, this may not matter as issues of quality are being addressed more appropriately in the British NHS through a variety of other routes.     

A new approach to preferred provider selection in health care

In January 2015 Zilveren Kruis, the largest health insurer in The Netherlands, engaged in a new three-year, unlimited volume contract with five carefully selected providers of cataract surgery. Zilveren Kruis used a novel method, designed to identify the top expert providers in a certain discipline. This procedure for provider selection uses the principles of Best Value Procurement (BVP), and puts the provider in charge of defining key performance indicators for health care quality. The procedure empowers the professional and acknowledges that the provider, not the purchaser, is the true expert in defining what is high quality care. This new approach focuses purely on provider selection and is thus complementary to innovations in health care reimbursement, such as value-based hospital purchasing or outcome-based financing. We describe this novel approach to preferred provider selection and show how it makes affordable quality the core topic in negotiations with providers.     

The Health Security Act and improving the quality of care: will the Clinton reforms help or hinder?

Maintaining and improving the quality of care is central to the Health Security Act, according to this in-depth analysis of the Act's intended quality reforms. The author reviews the proposal from several perspectives, including those of administrative law, hospital administration, health services research, and risk management. In the author's opinion, quality reforms involving the federal government as purchaser of medical care and as grader of the quality of its health care providers require close scrutiny. The establishment of a National Health Board and a National Quality Management Council further heightens concerns for quality standards and oversight. The article also evaluates the proposed health quality data super-highway, making several stops for contemplation and critical analysis.     

A game-theoretic framework for estimating a health purchaser’s willingness-to-pay for health and for expansion

A health purchaser’s willingness-to-pay (WTP) for health is defined as the amount of money the health purchaser (e.g. a health maximizing public agency or a profit maximizing health insurer) is willing to spend for an additional unit of health. In this paper, we propose a game-theoretic framework for estimating a health purchaser’s WTP for health in markets where the health purchaser offers a menu of medical interventions, and each individual in the population selects the intervention that maximizes her prospect. We discuss how the WTP for health can be employed to determine medical guidelines, and to price new medical technologies, such that the health purchaser is willing to implement them. The framework further introduces a measure for WTP for expansion, defined as the amount of money the health purchaser is willing to pay per person in the population served by the health provider to increase the consumption level of the intervention by one percent without changing the intervention price. This measure can be employed to find how much to invest in expanding a medical program through opening new facilities, advertising, etc. Applying the proposed framework to colorectal cancer screening tests, we estimate the WTP for health and the WTP for expansion of colorectal cancer screening tests for the 2005 US population.     

Hospital Health Care: Pricing and Quality Control in a Spatial Model with Asymmetry of Information

The cost of hospital care depends on the quality of the service, on the personal characteristics of the patient, on the effort of the medical staff and on information asymmetry. In this article the cost minimizing properties of alternative payment systems will be discussed in a context where hospitals can observe patient severity and compete according to the rules of Hotelling's spatial competition. The scheme is designed from the standpoint of a purchaser that sets up a contract with several providers for services of a given quality at the least possible cost. Patients' severity cannot be observed and quality cannot be verified, but the latter can be inferred through the choice of patients. The model shows that in the health care market, prospective payments and yardstick competition are weak instruments for cost containment; incentive compatible schemes are, at least from a theoretical point of view, better instruments especially in a context where the purchaser can use signals relating to the variables it cannot observe. Cost inflation has two components: the information rent paid to the provider and inefficiency. In our model the information rent is used by the provider to get more patients to his hospital; spatial competition can then be used to curb the cost of providing hospital care. JEL classification: I110, I180, D820     

Information vs advertising in the market for hospital care

Recent health care reforms have introduced prospective payments and have allowed patients to choose their preferred providers. The expected outcome is efficiency in production and an increase in the quality level. The former objective should be obtained by the prospective payment scheme; the latter by the demand mechanism, through the competition between providers. Unfortunately, because of asymmetry of information, patients are unable to observe the true quality and the demand for health care services depends on a perceived quality as influenced by the hospital advertising. Inefficiency in the resource allocation and social welfare loss are the two likely effects. In this paper we show how the purchaser can implement effective policies to overcome these undesired effects.     

DRG prospective payment systems: refine or not refine?

We present a model of contracting between a purchaser of health services and a provider (a hospital). We assume that hospitals provide two alternative treatments for a given diagnosis: a less intensive one (for example, a medical treatment) and a more intensive one (a surgical treatment). We assume that prices are set equal to the average cost reported by the providers, as observed in many OECD countries (yardstick competition). The purchaser has two options: (1) to set one tariff based on the diagnosis only and (2) to differentiate the tariff between the surgical and the medical treatment (i.e. to refine the tariff). We show that when tariffs are refined, the provider has always an incentive to overprovide the surgical treatment. If the tariff is not refined, the hospital underprovides the surgical treatment (and overprovides the medical treatment) if the degree of altruism is sufficiently low compared with the opportunity cost of public funds. Our main result is that price refinement might not be optimal. Copyright © 2009 John Wiley & Sons, Ltd.     

Paying for efficiency: what price the quality of hospital care?

Abstract: Economic recession prompts governments and health service ministers to seek increased efficiency in the production of hospital services in order to reconcile increasing demands with scarce resources. As one approach to the problem, the National Health Strategy is recommending pilot schemes, similar to those which have been introduced in both the United Kingdom and the Netherlands, which involve the separation of purchaser from the provider of hospital services. It is argued that such separation, with the introduction of competition between providers of hospital services for contracts placed by publicly funded Area Health Boards, will increase efficiency and accountability in the use of resources. However, this argument ignores the hospital management's ability to keep costs down by altering the quality of hospital care in ways which are difficult to monitor by purchasing agencies. The article considers the effects the introduction of managed competition is likely to have on the quality of hospital services. The outcome is uncertain and competition may improve some dimensions of quality while jeopardising others. If managed competition is tried in Australia, the opportunity should also be taken to examine its impact on the quality and outcomes of hospital care.     

Cost control without compromising quality of care

By focusing on creative options that meet the varied health care needs of a wide range of members, a multiemployer purchaser of health care in California is able to provide quality care at affordable prices to public employees.     

The public interest and professional guilds in 21st century medicine

The rapid proliferation of science in the second half of the 20th century and the creation of all-powerful professional guilds in control of that science is the fundamental barrier to the public use of the knowledge. Physicians and all other health professionals and institutions divide and sub-divide into yet another named specialty with each new discovery. The United States spends nearly twice the amount paid by other countries for personal medical services. Yet, the US is 24th in the world in terms of life expectancy adjusted for disability, and an increasing number of people have no insurance for physician or hospital services. The services of physicians and other professionals (medical care) are only part of the human search for health. Nations attempt to manage access to and the cost of medical services and the guilds that control the services based on prevailing economic ideology in that county. All economic theory overlooks the core of medical care reality. The patient is the consumer of medical services but not the purchaser. The physician is the purchaser of nearly all medical services and has a financial interest in the services provided and a professional stake in fragmentation of service.     

Contracts and supply assurance in the UK health care market

We present a formal model of the relationship between a health care purchaser and a provider drawing on the recent experience of explicit contracting in the UK health sector. Specifically we model the contractual relationships emerging between District Health Authorities, who are presently the dominant health care purchasers, and the providers of hospital care. The comparative static analysis implies that the transaction cost of using non-local hospitals, the expected patient demand, the extent of excess capacity in local hospitals, and the proportion of that excess capacity expected to be lost to competitive purchasers, are all important determinants of the choice of contract.     

Exploring the determinants of NHS performance ratings: lessons for performance assessment systems

OBJECTIVES: A basic tenet of effective performance management is that decision makers should be held responsible only for aspects of performance over which they have control. We examine the degree to which variations in the performance of health care organizations are explained by a range of factors that are subject to differing degrees of managerial control. METHODS: We use multiple regression methods and data on 304 National Health Service (NHS) Primary Care Trusts (PCTs) in England for 2002/03 to analyse the relationship between their performance, as measured by 'star ratings' and nine key performance targets, and a large number of explanatory variables. We classify the explanatory variables into five groups along a spectrum from 'no managerial control' to 'total managerial control'. We also analyse the relationship between PCTs that are service purchasers and their main providers to assess the degree to which their performance is linked. RESULTS: For all of the key performance targets, most of the variation in performance is unexplained, although variables in groups 1, 2 and 3 (less managerial control) explain the largest proportion of variation. We find some evidence that socioeconomic and geographic factors have an impact on performance. We also find a positive relationship between the performances of purchaser and provider organizations. CONCLUSIONS: The star ratings did not allow for the different environmental circumstances within which PCTs operate and which affect their performance. Policy-makers should exercise caution in using such performance indicators to regulate health care organizations.     

Multi‐tasking,quality and pay for performance

We present a model of optimal contracting between a purchaser and a provider of health services when quality has two dimensions. We assume that: (i) the provider is (at least to some extent) altruistic; (ii) one dimension of quality is verifiable (dimension 1) and one dimension is not verifiable (dimension 2); (iii) the two quality dimensions can be either substitutes or complements. Our main result is that setting the price equal to the marginal benefit of the verifiable quality dimension can be optimal even if the two quality dimensions are substitutes. Copyright © 2010 John Wiley & Sons, Ltd.     

Day case surgery trends in England: the influences of target setting and of general practitioner fundholding

OBJECTIVES: To describe the trends in the proportion of elective surgery carried out as day cases, and the impact of the setting of targets and the introduction of general practitioner (GP) fundholding on the use of day surgery. METHODS: Cross-sectional analysis of Hospital Episode Statistics for England. 1990/1991 to 1994/1995, comparing procedures for which targets were and were not set, and comparing types of purchaser (GP fundholder and health authority). RESULTS: Elective surgical procedures increased from 2.7 million in 1990/1991 to 3.9 million in 1994/1995, a 44% increase. Increased numbers of day cases (up 117%) accounted for almost all of the increased total activity. The proportion of day cases rose from 35% to 53% over the period. Those procedures for which targets were set (over 25% of elective surgery) had a slightly lower day case proportion in 1990/1991 (34% compared to 36%) but slightly higher by 1994/1995 (57% compared to 52%). GP fundholders generally had slightly lower proportions treated as day cases compared to health authorities. CONCLUSIONS: Day cases were additional to, rather than a substitute for, inpatient treatments. Setting day case targets may have been associated with growth in use of day surgery, but there was no association with type of purchaser.     

Payment contracts in a preventive health care system: a perspective from operations management

We consider a health care system consisting of two noncooperative parties: a health purchaser (payer) and a health provider, where the interaction between the two parties is governed by a payment contract. We determine the contracts that coordinate the health purchaser–health provider relationship; i.e. the contracts that maximize the population's welfare while allowing each entity to optimize its own objective function. We show that under certain conditions (1) when the number of customers for a preventive medical intervention is verifiable, there exists a gate-keeping contract and a set of concave piecewise linear contracts that coordinate the system, and (2) when the number of customers is not verifiable, there exists a contract of bounded linear form and a set of incentive-feasible concave piecewise linear contracts that coordinate the system.     

Has the leapfrog group had an impact on the health care market?

A number of large employers and public purchasers founded the Leapfrog Group in 2000 in an attempt to consolidate the purchaser voice and engage consumers and clinicians in improving health care quality. Drawing on evidence-based medicine, Leapfrog publicly releases information about the extent to which hospitals are adopting three safety "leaps" with the theoretical capacity to prevent thousands of deaths. Although the group has grown rapidly and achieved national recognition, employer-based initiatives historically have struggled to create changes in health care. This paper examines the impact of the Leapfrog Group and its efforts to address the challenges of employer initiatives.     

Quality and customers: Type 2 change in mental health delivery within health care reform

The traditional separation of mental health and medical programs is problematic because mental health issues are inseparable from the larger medical system. By contrast, a collaborative primary care model of mental health care, augmented and supported by secondary specialty mental health services, has the potential to optimize quality and cost goals while reinforcing health care reform principles. The flexibility of mental health treatment in this delivery structure provides opportunities to customize services according to patient and purchaser expectations. with the Hay Group Inc.     

A profile of hospital acquisitions

The number of hospitals acquired by hospital systems has declined from 99 facilities in 1996 to less than 63 facilities between 1999 and 2000. We evaluated the market, operating and organizational factors, and their relationship to these hospital acquisitions that occurred during this period of decline. We found that acquired hospitals, on average, operated at a loss, incurred higher debt levels, and were more likely to be located in markets with a large number of health maintenance organizations. Older, for-profit hospitals with fewer occupied beds were also likely targets for hospital acquisitions.     

Measuring Rural Hospital Quality

CONTEXT: Increased interest in the measurement of hospital quality has been stimulated by accrediting bodies, purchaser coalitions, government agencies, and other entities. PURPOSE: This paper examines quality measurement for hospitals in rural settings. We seek to identify rural hospital quality measures that reflect quality in all hospitals and that are sensitive to the rural hospital context. METHODS: We develop a conceptual model for measuring rural hospital quality, with a focus on the special issues posed by the rural hospital context for quality measurement. With the assistance of a panel of rural hospital and hospital quality measurement experts, we review hospital quality measures from national and rural organizations for their fit to rural hospitals. FINDINGS: Based on this analysis, we recommend an initial core set of quality measures relevant for rural hospitals with less than 50 beds. This core set of 20 measures includes 11 core measures from the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) related to community acquired pneumonia, heart failure, and acute myocardial infarction; 1 measure related to infection control; 3 measures related to medication dispensing and teaching; 2 procedure-related measures; 1 financial measure; and 2 other measures related to the use of advance directives and emergency department monitoring of trauma vital signs. CONCLUSION: Based on the special measurement needs posed by the rural hospital context, we suggest avenues for future quality measure development for core rural hospital functions (eg, triage, stabilization, and transfer, and emergency care) not considered in existing quality measurement sets.