Preferred providers and the credible commitment problem in health insurance: first experiences with the implementation of managed competition in the Dutch health care system

We investigate the impact of the transition towards managed competition in the Dutch health care system on health insurers' contracting behaviour. Specifically, we examine whether insurers have been able to take up their role as prudent buyers of care and examine consumers' attitudes towards insurers' new role. Health insurers' contracting behaviour is investigated by an extensive analysis of available information on purchasing practices by health insurers and by interviews with directors of health care purchasing of the four major health insurers, accounting for 90% of the market. Consumer attitudes towards insurers' new role are investigated by surveys among a representative sample of enrollees over the period 2005-2009. During the first four years of the reform, health insurers were very reluctant to engage in selective contracting and preferred to use 'soft' positive incentives to encourage preferred provider choice rather than engaging in restrictive managed care activities. Consumer attitudes towards channelling vary considerably by type of provider but generally became more negative in the first two years after the reform. Insurers' reluctance to use selective contracting can be at least partly explained by the presence of a credible-commitment problem. Consumers do not trust that insurers with restrictive networks are committed to provide good quality care. The credible-commitment problem seems to be particularly relevant to the Netherlands, since Dutch enrollees are not used to restrictions on provider choice. Since consumers are quite sensitive to differences in provider quality, more reliable information about provider quality is required to reduce the credible-commitment problem.     

The who, what, and why of risk adjustment: a technology on the cusp of adoption

Risk adjustment (RA) consists of a series of techniques that account for the health status of patients when predicting or explaining costs of health care for defined populations or for evaluating retrospectively the performance of providers who care for them. Although the federal government seems to have settled on an approach to RA for Medicare Advantage programs, adoption and implementation of RA techniques elsewhere have proceeded much more slowly than was anticipated. This article examines factors affecting the adoption and use of RA outside the Medicare program using case studies in six U.S. health care markets (Baltimore, Seattle, Denver, Cleveland, Phoenix, and Atlanta) as of 2001. We found that for purchasing decisions, RA was used exclusively by public agencies. In the private sector, use of risk adjustment was uncommon and scattered and assumed informal and unexpected forms. The most common private sector use of RA was by health plans, which occasionally employed RA in negotiations with purchasers or to allocate resources internally among providers. The article uses classic technology diffusion theory to explain the adoption and use of RA in these six markets and derives lessons for health policy generally and for the future of RA in particular. For health policy generally, the differing experiences of public and private actors with RA serve as markers of the divergent paths that public and private health care sectors are pursuing with respect to managed care and risk sharing. For the future of RA in particular, its history suggests the need for health service researchers to consider barriers to use adoption and new analytic technologies as they develop them.     

Why some market reforms lack legitimacy in health care

Market-oriented health policy reforms in the 1980s and 1990s generally included five kinds of proposals: increased cost sharing for patients through user fees, the separation of purchaser-provider functions, management reforms of hospitals, provider competition, and vouchers for purchasing health insurance. These policies are partly derived from agency theory and a model of managed competition in health insurance. The essay reviews the course of reform in five countries that had a national health service model in place in the late 1980s: Italy, New Zealand, Spain, Sweden, and the United Kingdom. Special consideration is given to New Zealand, where the market model was extensively adopted but short lived. In New Zealand, surveys and polls are compared to archival records of reformers' deliberations. Voters saw health care differently from elites, and voters particularly felt that health care was ill suited to commercialization. There are similarities across all five countries in what has been adopted and rejected. Some market reforms are more legitimate than others. Reforms based on resolving principal-agent problems, including purchaser-provider splits and managerial reforms, have been more successful, although cost sharing has not. Competition-based reforms in financing and to a lesser extent in provision have not gained legitimacy. Most voters in these countries see health care as different from other parts of the economy and view managerial reforms differently from policies that try to make health care more like other sectors.     

The politics of managed competition: public abuse of the private interest

The doctrine of managed competition in health care sought to achieve the social goals of access and efficiency using market incentives and consumer choice rather than governmental regulation and public administration. In retrospect, it demanded too much from both the public and the private sectors. Rather than develop choice-supporting rules and institutions, the public sector has promoted process regulation and benefit mandates. The private health insurance sector has pursued short-term profitability rather than cooperate in the development of fair competition and informed consumer choice. Purchasers have subsidized inefficient insurance designs in order to exploit tax and regulatory loopholes and to retain an image of corporate paternalism. America's health care system suffers from the public abuse of private interests and the private abuse of the public interest.     

Any-Willing-Provider laws: their financial effect on HMOs

Any-Willing-Provider (AWP) legislation requires that health plans accept any health care provider who agrees to conform to the plan's conditions, terms, and reimbursement rates. Many states have adopted such legislation, raising questions about its effect on the managed care market. Those favoring this legislation argue that it will reduce restrictions on choice of provider, while opponents argue that it will reduce competition by increasing administrative and medical costs for managed care plans. Using cross-sectional time-series data for the period 1992-1995 (the period during which many of these laws were enacted), this study investigates the effect that these laws have on HMO financial performance. Our results show that "all-provider" AWP laws have a very limited effect on the financial performance measures we examine. "Pharmacy" AWP laws have a more significant effect, but neither type of law appears to affect the overall profitability of HMOs.     

Implementing health care reform in Israel: organizational response to perceived incentives

Devising new incentives was a main element of health care reform in Israel, which created a regulated market that embodies many principles of managed competition. This study examined sick fund directors' perceptions of the new incentives and their strategic responses to these incentives, enabling the testing of how managed competition works in practice. The methodology used was a multiple case study of Israel's four sick funds. Data were gathered through in-depth interviews with 160 senior officials, analysis of national health insurance legislation, and analysis of published and unpublished archival documents, newspaper articles, public statements of senior managers, and other published data on the sick funds' behavior. The study revealed discrepancies between planned and perceived incentives and highlighted the effect of the latter on strategy formulation. Analysis of sick fund strategies showed that their responses to managed competition incentives deviated from theoretical expectations, compromising some of the objectives of the reform. The study also shows that contextual features account for the specific model of managed competition that was implemented and for the specific strategies employed by the sick funds. The study concludes by highlighting the need to build a process that will enable policy makers to consider local contextual factors when planning and implementing reform, involving health care providers in designing incentives, continuously monitoring processes and outcomes in the reformed system, and allowing for flexibility in policy making.     

Waiting for Godot: wishes and worries in managed care

Managed care has done a better job at reducing expenditure growth than it has in improving quality. Although reduced expenditure growth is not appreciated by many, it has real benefits. For the majority of Americans who are privately insured, it results in greater disposable income for goods and services other than health care (although the illusion of employer-paid health insurance obscures this reality for many). For Medicaid programs, slower growth of expenditures facilitates efforts at expanding coverage. For low-income workers, slower expenditure growth results in larger numbers of people retaining insurance coverage than would have been the case if premiums rose more quickly. While there are some victories to which managed care organizations can point, we cannot credibly argue that overall levels of quality and health outcomes are improving as the health care system is massively disrupted by changes in health care finance and delivery. The disruptions create real hardships for some physicians and other health care workers, and worries for many consumers. These worries fuel the managed care backlash. The danger is that politicians will respond to these worries with policies that inhibit the development of high-quality delivery systems. The opportunity is for relatively modest public policy changes--external review organizations, better public-sector purchasing capabilities, public investment in producing and publicizing information on health plan and medical group performance, and establishment of a public ombudsperson--to respond to consumer worries and lead to improvements in health care quality and outcomes. Finally, I would be remiss without a reminder that the single most effective action politicians could take to improve health care quality and outcomes would be to change the rules of health care financing to assure that all Americans are covered by managed care. Even with all of its inadequacies, managed care is much superior to the patchwork care available to the 43 million Americans who are uninsured. The managed care backlash is concerned with protecting patients who are insured (and their providers). Far more valuable would be to protect those without insurance. Sadly, no politician has yet figured out how to do this. Still waiting.     

The patient protection and affordable care act: the victory of unorthodox lawmaking

The 2010 Patient Protection and Affordable Care Act was a major legislative achievement of the 111th Congress. This law structurally reforms the US health care system by encouraging universal health care coverage through regulated competition among private insurance companies. When looking at the process for reform, what strikes an observer of US health care policy in the first place is that the Democratic majority was able to enact something in a political field characterized by strong resistance to change. This article builds on that observation. Arguments concentrate on the legislative process of the reform and support the idea that it may be partly explained by considering an evolution of US legislative institutions, mostly in the sense of a more centralized legislative process. Based on approximately one hundred semidirected interviews, I argue that the Democratic majority, building on lessons from both President Bill Clinton's health care reform attempt and the Republicans' strategy of using strong congressional leadership to pass social reforms, was able to overcome institutional constraints that have long prevented comprehensive change. A more centralized legislative process, which has been described as "unorthodox lawmaking," enabled the Democratic leadership to overcome multiple institutional and political veto players.     

Legislative responses to managed care pressures

Changes brought about by the increasing presence of managed care have sparked responses in a number of states. While proponents of managed care contend that it fosters competition and allows the market to influence its nature and functioning, the legislators' responses call into question the notion that managed care will bring greater freedom to insurers and providers and, at the same time, will benefit health care consumers.     

Connecting consumer choice to the healthcare system

American healthcare needs to be reformed into competing, efficient, comprehensive care systems. To get there from here, we need a health insurance market in which each person or household has a wide, responsible, informed, individual multiple choice of health care financing and delivery plans. The point of this is competing delivery systems, not just competing carriers. To compete, some carriers will create or contract with selective delivery systems or doctors selected for their quality and cost-effectiveness. Others will already be teamed up with large multispecialty group practices. On the other hand, high deductible plans will not help us get to a reformed delivery system.     

Side effects: a dose of competition and access to care

The Federal Trade Commission and Department of Justice 2004 report Improving Health Care: A Dose of Competition argues in favor of increasing competition among health care providers. Several of the proposals within the report, however, may pose risks for access to care. The report urges that the current system of implicit cross-subsidies for indigent care be replaced with insurance expansions that provide coverage to individuals. Such a substitution would certainly enhance access, but would be very costly and likely require considerable government intervention in the health care system. In the absence of a substantial expansion in coverage, reductions in cross-subsidies could limit access to care through the existing safety net. The report argues that insurance mandates limit access to care by driving up cost and reducing choice. In some cases, such as mental health and substance abuse, however, the unregulated market may not cover a benefit at all, leaving people with less coverage and less choice. Finally, the report stresses the importance of linking costs to quality. Such a linkage is likely to lead to a health care system in which poor people obtain poor-quality care at low prices--a result that many would find disturbing.     

Strategies to enhance price and quality competition in health care: lessons learned from tracking local markets

Drawing on observations from tracking changes in local health care markets over the past ten years, this article critiques two Federal Trade Commission and Department of Justice recommendations to enhance price and quality competition. First, we take issue with the notion that consumers, acting independently, will drive greater competition in health care markets. Rather we suggest an important role remains for trusted agents who can analyze inherently complex price and quality information and negotiate on consumers' behalf. With aggregated information identifying providers who deliver cost-effective care, consumers would be better positioned to respond to financial incentives about where to seek care and thereby drive more meaningful competition among providers to reduce costs and improve quality. Second, we take issue with the FTC/DOJ recommendation to provide more direct subsidies to prevent distortions in competition. In the current political environment, it is not practical to provide direct subsidies for all of the unfunded care that exists in health care markets today; instead, some interference with competition may be necessary to protect cross subsidies. Barriers can be reduced, though, by revising pricing policies that have resulted in marked disparities in the relative profitability of different services.     

Patient Protection and Affordable Care Act; establishment of exchanges and qualified health plans; exchange standards for employers. Final rule, Interim final rule

This final rule will implement the new Affordable Insurance Exchanges ("Exchanges"), consistent with title I of the Patient Protection and Affordable Care Act of 2010 as amended by the Health Care and Education Reconciliation Act of 2010, referred to collectively as the Affordable Care Act. The Exchanges will provide competitive marketplaces for individuals and small employers to directly compare available private health insurance options on the basis of price, quality, and other factors. The Exchanges, which will become operational by January 1, 2014, will help enhance competition in the health insurance market, improve choice of affordable health insurance, and give small businesses the same purchasing clout as large businesses.     

Department of Justice challenging big insurers' "Most Favored Nation" clauses

The DOJ's latest actions suggest that MFNs in managed care contracts should be evaluated on a case-by-case basis, focusing on the actual or potential impact that the MFNs have on price competition among providers and payors in the relevant marketplace. For health care providers desiring to avoid MFNs, however, the DOJ's heightened activity in this area might furnish an appropriate reason to resist such clauses. To date, the DOJ's focus has been on the market power of payors with MFN status. However, the DOJ's reasoning applies equally to providers that wield buying power in contracting with others. Although the DOJ has yet to take up this latter issue, MFNs imposed by increasingly powerful provider organizations can expect to receive similar scrutiny from the DOJ, especially as their market influence grows.     

The political management of managed care: explaining variations in state health maintenance organization regulations

In the 1990s, strong incentives for managed care organizations to control costs, once regarded as a fortuitous confluence of interests, came to be seen as antithetical to consumers' interests in quality of care. In response to this change in political climate, many states have greatly increased their regulatory control of managed care organizations since the mid-1990s. This activity is surprising in an era when public policy on health care issues is usually described as frozen, gridlocked, and/or stalemated as a result of intense activity on the part of organized interests. We take advantage of the variation in state regulations of health maintenance organizations (HMOs) to discover why some governments are able to address policy problems that are often perceived as intractable in a political if not in a true policy sense. From the history of HMOs, the backlash against managed care, and state responses to that backlash, we first extract a number of hypotheses about state regulatory activity. We then test these hypotheses with data on regulatory adoptions by states during the late 1990s and the early 2000s. Last, we discuss the findings with special attention to the role of politics in health care.     

The invention of health law

By default, the courts are inventing health law. The law governing the American health system arises from an unruly mix of statutes, regulations, and judge-crafted doctrines conceived, in the main, without medical care in mind. Courts are ill-equipped to put order to this chaos, and until recently they have been disinclined to try. But political gridlock and popular ire over managed care have pushed them into the breach, and the Supreme Court has become a proactive health policy player. How might judges make sense of health law's disparate doctrinal standards? Scholars from diverse ideological starting points have converged toward a single answer: the law should look to deploy medical resources in a systematically rational manner, so as to maximize the benefits that every dollar buys. This answer bases the orderly development of health care law upon our ability to reach stable understandings, in myriad circumstances, of what welfare maximization requires. In this Article, I contend that this goal is not achievable. Scientific ignorance, cognitive limitations, and normative disagreements yield shifting, incomplete, and contradictory understandings of social welfare in the health sphere. The chaotic state of health care law today reflects this unruliness. In making systemic welfare maximization the lodestar for health law, we risk falling so far short of aspirations for reasoned decision making as to invite disillusion about the possibilities for any sort of rationality in this field. Accordingly, I urge that we define health law's aims more modestly, based on acknowledgement that its rationality is discontinuous across substantive contexts and changeable with time. This concession to human limits, I argue, opens the way to health policy that mediates wisely between our desire for public action to maximize the well being of the many and our intimate wishes to be treated noninstrumentally, as separate ends. I conclude with an effort to identify the goals of health law, so constructed, should pursue and to suggest how a strategy of accommodation among these goals might apply to a variety of legal controversies.     

Learning to love the state action doctrine

The state action doctrine receives relatively little attention in the Federal Trade Commission/Department of Justice 2004 report on competition in the health care sector. Not surprisingly, the report focuses primarily on urging states to reconsider specific laws that tend to restrict competition in health care markets but that are clearly shielded by the state action doctrine. Relatively little attention is given to the interpretation of the doctrine itself. This article employs the twin themes of institutional choice and market failure to evaluate a number of interpretive proposals affecting the state action doctrine that were available to, but not taken up by, the agencies. It also proposes using the state action doctrine to ease the burden on courts in market-failure cases in which there is an obvious threat to competition and the alternative of publicly accountable regulatory action is available.     

The use of expensive health technologies in the era of managed care: the remarkable case of neonatal intensive care

The use of neonatal intensive care (NIC) continued to rise rapidly in the 1990s despite the concerns of observers about its cost effectiveness and its successes being mostly in facilities with high volume and capabilities. The objective of this study is to test the effects of insurance type, competition among hospitals, and market pressure from managed care plans on the supply and cost of NIC. The analysis uses logistic and linear models with techniques to avoid bias from (a) market area definitions based on actual patient flows and (b) self-selection of hospitals by patients with unmeasured risk of needing NIC. The data source contains all births in short-term hospitals in New Jersey during 1990 and 1994. Both the number of days and charges for NIC are reported. Key findings are that the decision of a hospital to offer NIC was associated with teaching status, the proportion of infants in the market area with documented high risk, and the market concentration of major competitors. The market share of managed care plans and the concentration of enrollment were not associated with either NIC being offered or with the standardized charges. Whether a particular patient was given to a NIC depended on patient risk factors and whether a NIC unit was present, but not on payer group. The results are consistent with the hypothesis that young insured parents (with the advice of their obstetricians) prefer hospitals with NIC and also are relatively profitable enrollees for health plans. In conclusion: using the results here and in other research, public and private policy makers may consider several ways to strengthen the incentives for health plans to contract for cost-effective birth-related services. The results also raise questions for a number of regulatory and payment policies and call for better public data on costs and outcomes for NIC.     

Will the Supreme Court finally eliminate ERISA preemption?

David Trueman's article reviews the history of ERISA preemption by analyzing seminal Supreme Court cases and predicts the future of ERISA preemption in his analysis of recent federal case law. Traditionally, the ability to hold a managed care entity responsible for its actions has been hampered by a strict interpretation of the preemption clauses of ERISA but as the Supreme Court's jurisprudence has evolved and loosened, several federal courts have allowed suits against managed care companies to go forward. Conflict among the federal circuits has arisen and the Supreme Court has granted certiorari to two cases from Texas in order to clarify ERISA preemption. Mr. Trueman discusses the future of ERISA preemption in light of these decisions.