Program Note
The Agency for Health Care Policy and Research (AHCPR) is the lead Federal agency charged
with supporting and conducting health services research. This
Program Note describes recent research projects supported by AHCPR.
Contents
Introduction
Changes in Health Care Markets
Organization and Delivery of Services
Impact on Clinical Decisionmaking, Access, and Quality
Interventions That Improve Outcomes
Informing Consumers
Impact on Cost
Rural Studies
Tools
Fostering Research
Additional Information
Introduction
The last several years have witnessed a remarkable transformation in all facets of America's health
care system, from its financing to the way health care services are organized and delivered. The
driving force in this transformation is the shift from traditional fee-for-service (FFS) systems to
managed care networks, which run the gamut from tightly structured staff model health
maintenance organizations (HMOs) to loosely organized preferred provider organizations (PPOs).
Today, more than 60 million Americans are enrolled in some type of HMO.
Changes in our health care system are occurring in response to market forces for cost control, to
regulatory initiatives on cost and quality, and to consumer demands for quality care and greater
flexibility in provider choice. Other factors causing change are the increasing domination of
for-profit ownership and the rapidly increasing number of public beneficiaries, particularly
Medicaid recipients. Because these changes occurred so rapidly and extensively, little is known
about the long-term effects of managed care on access to care, cost, and quality of care. If
policymakers, purchasers, and consumers are to make thoughtful and reasonable decisions, we
need to know what works and how much it costs.
AHCPR is the lead Federal agency charged
with supporting and conducting health services research. These studies are designed to produce
information that, ultimately, will improve consumer choice, improve the quality and value of
health care services, and support and improve the marketplace. The vast majority of research on
managed care has been conducted in HMOs, the prototypic managed care organization. This
Program Note describes recent research projects supported by AHCPR, sometimes in conjunction
with other agencies in the Department of Health and Human Services, or conducted by AHCPR
researchers.
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Changes in Health Care Markets
AHCPR's research portfolio includes a number of studies designed to address market-level
questions, with an emphasis on market competition, deregulation, and privatization in health care.
Questions posed include the following: How does increased managed care penetration affect
health care delivery systems? What are the effects of competition among managed care
organizations? How does managed care affect physician and hospital markets?
HMO Impact on Integrated Networks and Services. Lawton Burns, Principal
Investigator.
This study is estimating the impact of HMO market structure on the development of integrated
networks among physicians and hospitals' (both horizontal and vertical integration). The project is
also estimating the effects of HMO market structure and integrated networks on hospital costs
and is providing evidence on whether integrated provider networks augment or moderate the
impact of HMO market structure on HMO premiums charged in local markets. (Project Officer:
Michael Hagan. Project dates: 9/30/95-3/31/97)
Effects of Horizontal Hospital Mergers on Efficiency, Profitability, and Consumer Prices.
Robert Connor, Principal Investigator. This project addressed the following questions: Do
hospital mergers reduce costs? Are savings passed on to consumers as lower prices, or are they
retained by hospitals as higher profits? Does market concentration affect merger-related changes
in cost or price inflation? Is there an optimal level of hospital market concentration for the most
efficient provision of hospital services? Does HMO market penetration affect hospital costs or
price inflation? Also examined was the relevance of merged hospitals' relative size, proximity, and
similarity in services for the outcomes of mergers. (Project Officer: Michael Hagan. Project dates:
9/30/95-3/31/97)
Competition and Health Plan Premium Determination. Randall P. Ellis, Principal
Investigator. This project examined how competition influences the determination of health
plan
premiums by identifying the rate-setting mechanisms and market structures where competition
seems to work well. The rate-setting mechanisms and market structures examined included
community rating, experience rating, competitive bidding, negotiated rate setting, government
formulas, payment by the employer of a fixed amount or a fixed proportion toward the plan,
number of plans offered, exit and entry of health plans, and the market share of HMOs. (Project
Officer: Michael Hagan. Project dates: 8/1/94-8/31/96)
Efficiency in Hospitals: Do HMOs and PPOs "Buy Right"? Jose Escarce, Principal
Investigator. This project is determining whether patients of HMOs and PPOs tend to use
more
efficient, higher quality and lower cost hospitals, respectively, than nonmanaged care patients. The
study will control for important correlated factors such as distance of patients to the hospital.
(Project Officer: Michael Hagan. Project dates: 9/30/95-9/29/97)
Effects of Managed Care on Physicians' Practices. Jack Hadley, Principal Investigator.
This
project examines physician involvement with managed care plans: Do they have formal contracts?
Do they have formal "gatekeeper" responsibilities? What are the methods of payment, the extent
of risk-taking, and the financial incentives? The project is examining changes in practice size and
composition, in affiliation and ownership, and changes in operations (for example, satellite offices
and extended hours). Other factors being studied include hours worked, number of patients seen,
patient mix by insurance and socioeconomic status, fees charged, and physician satisfaction.
(Project Officer: Michael Hagan. Project dates: 9/30/95-9/29/97)
Effects of Health Care Market Structure on HMOs. Jack Hadley, Principal Investigator.
The goal of the project is to analyze the effects of key elements of the local insurance market on
the behavior of firms and final consumers of medical care. Specifically, the investigators are
focusing on how the growth and concentration of HMOs in individual health care markets affect
the choices made by employers in those markets, such as whether to offer an HMO, the share of
employees selecting the HMO, premiums, and benefits and plan characteristics (e.g., cost-sharing)
in HMO and indemnity plans offered. The project integrates several distinct sources of data,
including the annual national survey of employers' health insurance benefits from KPMG Peat
Marwick, HMO data from the Association of American Health Plans, Inforum, and other sources.
Effects of HMO concentration will be analyzed in total and by type of HMO. (Project Officer:
Michael Hagan. Project dates: 7/1/96-6/30/97)
The Performance of Strategic Hospital Collectives. Roice D. Luke, Principal
Investigator.
Strategic hospital collectives (SHCs), consisting of two or more hospitals in the same
metropolitan statistical area that are in the same system or network, are important examples of the
integration of health services organizations. The project gathered empirical evidence on how
performance is related to market structure, local environment, and the organizational
characteristics (hospital or SHC). Market structure is being measured by concentration in the
hospital market, HMO penetration, and the presence of large purchasers. (Project Officer:
Michael Hagan. Project dates: 9/30/95-9/29/97)
Health Care Markets, Managed Care, and Hospital Performance. Glenn A. Melnick,
Principal Investigator. Three linked markets (hospitals, physicians, and insurance) are being
examined. The study will describe how managed care penetration and competition among
providers and insurance companies affect hospital utilization, costs, revenues, and uncompensated
care. This study will broaden previous work on hospital competition and managed
care—which is
regional in nature—to the national scene. It will focus on interdependencies between markets
and
effects on hospital performance. (Project Officer: Michael Hagan. Project dates:
9/30/95-9/29/98)
Effects of Managed Care on Hospital and Physician Integration. Michael Morrisey,
Principal Investigator. To understand better how physicians and hospitals respond to
managed
care in local markets, the investigators are studying measures of physician-hospital integration
from a 1993 national survey of 1,500 U.S. community hospitals, which was designed to learn
about hospital-physician relationships. The survey contains facts on physician participation in
hospital management, on organizational and financial arrangements between hospital and
physician, on physician relations in teaching hospitals and in multi-hospital systems, and on
hospital revenues. (Project Officer: Michael Hagan. Project dates: 9/30/95-9/30/97)
Market Forces and Rural Health: System and Consumer Impact. Keith Mueller, Principal
Investigator. This project is assessing the pace of market changes in rural areas and the
involvement of rural providers and community leaders in changes that are occurring. Informants
(including health care providers, insurers, State offices of rural health, consumer representatives,
community health centers, employers, and public health agencies) will be used to assess provider
participation in market-driven changes. Knowledge gained from this project will be disseminated
directly to policymakers as well as to academics and other researchers. (Project Officer: Michael
Hagan. Project dates: 9/30/95-9/29/97)
The Impact of HMOs on Hospital Quality and Cost. Kevin G. Volpp, Principal
Investigator. The purpose of this project is to assess the impact of reforms to promote
competition such as increasing HMO penetration and hospital deregulation on hospital cost and
quality. Using data from two States, this research is designed to answer the following questions:
(1) Does increasing HMO penetration affect hospital outcomes? (2) Are hospital outcomes
affected by HMO-influenced cuts in hospital costs? (3) How do hospital outcomes and costs
compare under systems of price competition and rate-regulation? The relationship between
outcome variables (risk-adjusted mortality rates, risk-adjusted complication rates, failure rates,
and readmission rates) and structural measures of quality (e.g., nursing staff levels) will be
examined. (Project Officer: Claudia Steiner. Project dates: 9/1/96-8/31/97)
Impact of Managed Care on Physician Markets. William D. White, Principal Investigator.
To examine patterns of compensation, location, and use of primary care and specialist physicians,
this project used physician-level data and measures of managed care penetration. The study
assessed the effects of managed care on the number, incomes, hours, hourly compensation, and
type of care provided by primary care physicians relative to specialty physicians. Information from
this project addressed issues useful in evaluating workforce policies designed to address
imbalances between primary care physicians and specialists. (Project Officer: Michael Hagan.
Project dates: 9/30/95-9/29/97)
The Determinants of HMO Efficiency from 1985 to 1994. Douglas R. Wholey, Principal
Investigator. This project developed reliable efficiency measures of firm-level HMO
efficiency by
using two different methodologies and comparing the measures for consistency. Questions
addressed included: Do HMOs become more efficient over time? Is increasing efficiency due to
the failure of less efficient HMOs? Is increased efficiency due to enrollment growth and achieving
economies of scale? Is it due to mergers leading to larger, more efficient HMOs? Is it due to
HMO adaptation, holding HMO scale economies constant? Do more competitive markets lead to
greater HMO efficiency increases? How do State regulations affect the evolution of HMO
efficiency? (Project Officer: Michael Hagan. Project dates: 9/30/95-12/31/96)
Price Discrimination in the Physician Services Market: The Noncompetitive Effects of
HMO and PPO Growth. Herbert Wong, AHCPR Investigator. Researchers frequently argue
that the development and growth of HMOs and PPOs will lead to price competition, lower fees,
and lower profits in the physician services market. However, despite substantial growth in HMO
and PPO enrollment, real physician income continues to rise. This project constructs a theoretical
model in which physicians compete in a two-sector monopolistically competitive market, with
HMO/PPO and traditional fee-for-service sectors, to evaluate how HMO and PPO development
leads to market segmentation, price discrimination, and increased profits. The price discrimination
hypothesis offers a possible explanation as to why health care costs continue to rise despite
substantial growth in HMOs and PPOs over the last decade. Simultaneous equations methods are
employed to assess the validity of the price discrimination hypothesis. (Project dates:
1/1/93-2/28/97)
Competitive Effects of HMO Growth Across Health Care Sectors: A State-Level Analysis.
Herbert Wong, AHCPR Investigator. This study will examine the effects of HMO growth on
total personal health care expenditures and compare how different components of this measure
respond to HMO development. Existing empirical research of the competitive effects of HMO
growth is limited to case studies that examine cost and utilization of specific plans, localities, and
population groups. Broader studies have generally focused on the hospital services market. The
objectives of this study are to provide empirical evidence of the impact of HMO growth on total
personal health care expenditures, examine the effects of HMO growth on the various
components of this measure, and determine if costs have shifted from one market to another.
(Project dates: 1/1/94-12/31/97)
The Effect of Selective Contracting on Physician Pricing. Jack Zwanziger, Principal
Investigator. This study used data from three annual surveys of physician fee schedules
negotiated by PPOs and HMOs to examine (1) the relationship between the physician fees derived
from charge data ("usual, customary, and reasonable" [UCR] rates) and the market share of
HMO/PPO plans in the area, (2) comparisons of rates of growth of UCR rates with the growth of
negotiated fees, and (3) whether Medicare's Resource-Based Value Scale appears to be
influencing fee structures. Preliminary results indicate that first-round effects of competition on
physician fees have intensified in recent years, and that cost shifting between public and private
payers has continued even in an intensely cost-competitive era. (Project Officer: Michael Hagan.
Project dates: 9/1/93-2/28/96)
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Organization and Delivery of Services
How are delivery systems structured and organized and how does this influence the care
delivered? How are decisions made within managed care organizations? Which aspects of an
organization are critical to its successful operation? Research in this area strives to describe new
organizational behavior under managed care and construct empirical tests to explain observed
changes.
Measuring Primary Care Quality in Managed Care Systems. Donald Barr, Principal
Investigator. This qualitative study will evaluate the way in which managed care
organizations
structure and manage primary care practice units and the effects on quality of primary care.
Patient satisfaction and the satisfaction of physicians and other providers are measures of the
quality of primary care in this pilot study. (Project Officer: Linda Siegenthaler. Project dates:
9/30/96-9/29/97)
Innovations in a Reforming Health System. Sally Coberly, Principal Investigator. The
project will identify and describe the innovative strategies being used to help reshape health care
delivery systems into organized systems of health care by some of the Nation's largest, most
successful corporate purchasers of health care. As leaders in organized systems of care, physicians
are in a unique position to help large purchasers make sure that they are buying high-quality,
cost-effective care for their employees. The project will also provide information on purchaser
roles in encouraging organized systems of care, as well as insights into what it takes to make these
innovations work. Researchers will identify and profile innovations associated with each of three
key components that are essential aspects of all organized health care delivery systems: (1) patient
care, (2) operations, and (3) performance. (Project Officer: Irene Fraser. Project dates:
9/1/95-8/31/97)
Effects of Gatekeeping and Risk Transfer on Utilization of Selected Services in
Multi-Product Offerings by a Health Plan in a Single Metropolitan Area. Bernard
Friedman, AHCPR Investigator. The project will compare the experience of three product
lines
in one United HealthCare Corporation plan in a Midwestern city: (1) a capitated plan with
gatekeeping, (2) an open-access plan with gatekeeping, and (3) an open-access PPO-type FFS
plan. Preliminary work will include assembling data from encounters in the capitated plan and
describing the financial incentives for primary care providers in the two gatekeeping plans as well
as the payment contracts with specialists and hospitals. A number of measures of utilization of
service will be calculated for each plan. (Project dates: 7/1/96-6/30/98)
Specialty Contracting and Carve-Outs. Bernard Friedman, Fred Hellinger, Kelly Devers,
AHCPR Investigators. The goals of this project are to clarify trends in health care
contracting
for specialists and to weigh both theoretical hypotheses and actual performance of new forms of
contracting. The history, general prevalence, and variation in the terms of the contracts of
speciality carve-outs will be described by specialty and geographic area. The theory and any
supporting evidence on whether carve-outs achieve savings and if so, how these are achieved, will
be reviewed. Finally, the adequacy of the research designs and evaluation methods used to study
specialty carve-outs will be examined. (Project dates: 6/1/96-12/31/97)
Supply and Rationing of ICU Services in Two States: The Role of Managed Care. Bernard
Friedman and Claudia Steiner, AHCPR Investigators. This study attempts to clarify the
contribution of many factors, including payer differences, to the supply and rationing of an
expensive hospital-based service—intensive care unit (ICU) care. Data are being used from
two
States that differ sharply in medical system characteristics, ownership, and regulation. The study
views rationing decisions for a particular patient within a cost-benefit framework, modified by: (1)
special clinician responses to uncertainty, (2) overall pressure on hospital ICU capacity, (3)
financial incentives from particular payers, (4) the effects of teaching programs, and (5) hospital
ownership differences. (Project dates: 9/1/95-7/31/97)
Low-Income Women's Satisfaction with Prenatal Care. Arden S. Handler, Principal
Investigator. This project examined the relationship between characteristics of prenatal care
and
satisfaction among low-income minority women participating in Chicago's Medicaid managed
care program. The average satisfaction score for the overall sample was 74 percent. Practitioner
communication, waiting times, and the availability of on-site comprehensive services were found
to affect satisfaction. (Project Officer: Linda Siegenthaler. Project dates: 6/1/94-11/30/96)
Comparative Analysis of Medicaid Capitation Rate Methods. Ginny Hsieh, Principal
Investigator. The objective of this project is to determine whether much can be gained by the
use
of more refined measures of risk adjustment in setting Medicaid managed care capitation rates.
The specific aims are to (1) evaluate the predictive power of existing Medicaid rate-setting
methods to identify the best model, and (2) compare the expenditure levels predicted by Medicaid
rate methods and the expenditure levels based on alternative risk adjustment models with actual
cost. (Project Officer: Fred Hellinger. Project dates: 9/1/96-8/31/97)
Primary Care Performance for Low-Income Children in HMOs. Margarita Hurtado,
Principal Investigator. This cross-sectional study analyzes the relationship between type of
managed care and the organization, delivery, and quality of primary care delivered to
underinsured and previously uninsured children participating in Florida's Healthy Kids program.
(Project Officer: Linda Siegenthaler. Project dates: 9/1/96-8/31/97)
Medicaid Managed Care. Asthma: Does Plan Type Matter? Alexandra Shields, Principal
Investigator. The purpose of this study is to compare treatment of asthma in children enrolled
in
a staff model HMO with those assigned a primary care case manager. External guidelines
(National Asthma Education Program) will be used for evaluation. (Project Officer: James
Cooper. Project dates: 9/1/96-5/31/97)
Changes in the Delivery and Location of Care. Claudia Steiner, AHCPR Investigator. In
response to the rapid and substantial move in the delivery of clinical interventions from primarily
an inpatient setting to an ambulatory setting, this study will compare how rates for ambulatory
surgery differ for HMOs and non-HMOs. The primary goals of this study are to (1) determine
which procedures are most frequently performed in an ambulatory setting; (2) illustrate the shift
of medical procedures from the inpatient setting to the outpatient setting over time and across
several States in different regions of the U.S.; and (3) present descriptive differences between
procedures done on an inpatient basis and those done on an ambulatory basis in terms of patient
demographics, disposition at discharge, payer (including HMO and non-HMO), and charges.
(Project dates: 10/1/96-9/30/97)
Laparoscopic Cholecystectomy: How Does Payer Affect Adoption of Technology and
Location of Care? Claudia Steiner, AHCPR Investigator. The primary goals of this study are
to determine (1) whether the adoption of laparoscopic technique for gall bladder removal in a
western State has been associated with an increase in gall bladder removal rates; (2) the extent to
which any change in cholecystectomy rates have been associated with a move to ambulatory
surgery; and (3) whether observed changes in adoption of laparoscopic technique for gall bladder
removal, changes in gall bladder removal rates, and location of care differ between HMO and
non-HMO patients. (Project dates: 7/1/95-6/30/97)
How Do Different Types of HMOs Determine Access to New Medical Technology? Claudia
Steiner, AHCPR Investigator. Managed care plans can affect access to, cost, and quality of
health care through decisions about technology coverage. This study examines several aspects of
managed care plans, the decision process for coverage of new medical technology including
factors that alert plans to use of new medical technology, who is involved and has responsibility
for final decisions, and what sources of information are used. Data are from a national survey of
all member plans of Group Health Association of America and HMO plans of Blue Cross Blue
Shield Association, between October 1993 and March 1994. (Project dates: 10/1/93-6/30/97)
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