COMPETITION AND HEALTH CARE MARKETS. Flashcards
(28 cards)
what happened in the 1990 when the HMO was introduced ?
reducing health care cost growth, primarily through tough price negotiations.
Evidence shows there is a relationship between HMO penetration and the number of hospitals operating in the market.
how can we measure the market concentration
1.) herfindal hirschmann index : the cut off point here is 2,5 for a highly concentrated market .
example : 0,5 (2) +0,5(2)+ 0,5
the loci : this is a measure of how much competition a firm faces in different product markets.
Interpretation : 0 = pure monopoly
1= perfect competition
2= market not competitive
explain more about the inverse loci in the dutch hospital markets ( zie tekening)
LOCI is a measure of how much competition a firm faces in a differentiated products market
The graph shows the cumulative distribution of hospitals in the Netherlands by their values of the inverse of LOCI. As can be seen, approximately 20 percent of hospitals have values of inverse LOCI of 2 or below.
A value of 2 implies the market isn’t very competitive .
One half of all hospitals have inverse LOCI values of 3 or less. This implies that half of Dutch hospitals operate in markets where they face competition from a the equivalent of a triopoly or less.
what happened with the hospitals when hmo went on the rise
hospitals responded by merging so there where less hospitals and at a certain point the Hmo went down but the hospitals stayed merged.
what is the conclusion of the hospital HHI development ( zie tekening hospital hhi development 1990-2006)
the diagonal means no change .
above the diagonal means that over time in most markets the HHO went up and hospital competition went up.
By 2006, most health insurers now had to negotiate with hospital systems in highly concentrated markets, which likely reduced their bargaining clout .Insurance cannot do selective contracting so they have to go to one firm
what happened to the dutch hospital market concentration ?
there is a shift of the distribution from more concentrated to less concentrated markets.
There is a clear downward trend in the number of hospitals – there were 23 fewer hospitals in 2010 than in 1997. More recently, there has been a large increase in the number of independent outpatient treatment centers.
what can you say about the market concentration for insurance in the netherlands ( sheet p.3)
The levels of concentration in the Netherlands are substantially lower than in the U.S., but have grown substantially over time.
The mean HHI is not very high in 2005, but increased by nearly 800 points by 2010.
The mean HHI in 2010 is slightly higher than the HHI for an equally divided 5 firm market (2,000). While not trivial, this is below the recently revised Horizontal Merger Guidelines cutoff for considering a market highly concentrated (HHI=2,500).
What is most notable is the large increase in concentration over the period, which may be a cause for concern.
give an example of how health policy may affect provider market structure and thus change outcomes influenced by market structure
public payments to providers.
Hospitals and most physicians earn a large percentage of their revenue from providing care to publicly insured patients and those reimbursements are administratively determined.
Changes in those payments affect the returns to these providers to enter, exit, invest, merge and innovate
which factors are important in determining market structure.
entry, fixed costs and toughness of competition are important in determining market structure.
Which 4 key features of hospital markets play an important role in affecting competitive interactions between hospitals.
- privately insured patients primarily access hospital care through their health insur- ance, therefore the set of available hospitals will depend on the health plan’s provider network structure.
- patients do not pay directly for inpatient care.
- the health insurance choice of the patient is generally made prior to the need for inpatient treatment
- hospitals negotiate with private insurers over inclusion in their provider network and the reimbursement rates the hospital will receive from treating the insurer’s enrollees.
how do health insurers compete with eachother ?
based on premiums (which are a function of the prices they pay hospitals) on the breadth and quality of their provider networks.
what are the differences in behavior between for-profit and not-for-profit firms (and publics), and the impact of the mixture of different types of firms in a market on firm conduct.
Dafny (71) asks whether hospitals engage in “upcoding,” choosing more profitable diagnosis codes for patients when the profitability of doing so increases.
for-profit hospitals upcode more than not-for-profits .
-both responded strongly to the financial incentives in the policy ( if the governments increases reimbursment treating indigent patients)
Both types of private hospitals treated the most profitable indigent patients and avoided unprofitable ones.
Public hospitals’ behavior did not change. In addition, both for-profit and not-for-profit hospitals used the revenues from the indigent care program to increase financial assets, as opposed to improve medical care for the poor.
He finds that not-for-profit hospitals located in areas with many for-profit hospitals were substantially more responsive to the changed financial incentives than not-for-profit hospitals located in areas with few for-profits.
why do non profit have to follow in upcoding
if they don’t do it they will be competed out of the market. the only difference is that there is a quicker response for the profit hospitals due to the financial incentives. the thing is it doesn’t matter wether you upcode but how you upcode.
when hospitals merge ,do this affect the price
mergers result in significant market power but also lead to meaningful reductions in marginal costs and can be welfare improving.
mergers also have the potential to increase costs. Larger systems imply larger bureaucracies.
hospital costs are not necessarily exogenous to market structure. Hospitals that are able to bargain for higher prices may have the incentive to use the resulting profits for the benefit of physicians and hospital executives )
When will providers start to disclose quality information
If providers are able to cheaply and accurately asess everyones quality
if patients have reasonable beliefs about the distribution of quality
providers should be able to pass higher costs due to quality competition
why do hospitals invest in new technology
it is not cost effective but to get a bigger market share. example robot chirurgy . hospitals invest in it to get a bigger market power ,they can negotiate with the insurance company . when the robot gets insured then they will rise up the price and get profit from the investment.
what are the pros and cons of competition in healthcare ( provider competition)
On one hand, competition has been found to improve some clinical outcomes and reduce costs, but on the other hand it may be associated with professional and public resistence, fragmentation, mergers and reduced access.
, there is some evidence that competition is associated with:
improved clinical outcomes in some settings
reduced costs in some settings
improved efficiency in some settings
There is some evidence that competition can have negative impacts or mixed effects on:
access equity
what makes health insurance different from another insurance ,and what is optimal health insurance.
uitleg
are all the criteria for effective competition met in the Dutch health care systemq
uitleg
how can and should a society determine what should and should not be covered by basic health insurance
Bij de eerste methode kunnen burgers behandelingen ordenen in volgorde van belangrijkheid en waarderen. Bij ordenen staat de belangrijkste bovenaan. Bij de tweede methode geven burgers aan wat ze zelf maximaal bereid zijn te betalen om een behandeling op te nemen in de basisverzekering. Bij de derde methode stijgt en daalt de hoogte van de totale premie voor het basispakket afhankelijk van wat iemand in de basisverzekering wil hebben.
Do Health care providers disclose some quality information
Yes, Physicians must be licensed to practice and often display their certification.
These mechanisms fall far short of full disclosure, however, and patients seeking a specialist or hospital must often rely on the recommendations of their (potentially self-interested) referring physicians.
Does disclosure improves consumers choice
Consumers may migrate towards higher-quality providers (“vertical sorting”) or to sellers whose product characteristics best meet their idiosyn- cratic needs (“horizontal sorting”). Both types of sorting could substantially increase welfare even if product attributes remain unchanged.
Does disclosure improve quality ?
Uitleg
Conclusion
Health care consumers lack the information necessary to make fully informed pur- chases. Because providers have failed to fully disclose quality, report cards may play a vital role in improving purchase decisions. To date, the available evidence suggests that report cards are not realizing their potential.
Health care consumers do not seem to be highly moved by quality disclosure, though the best studies do suggest that consumers respond when rankings differ from preconceptions. The nature of the response depends on whether the disclosed infor- mation is easy to access and understand, and whether consumers pay attention to dis- closure. In any event, responses are modest and the dollar value of report cards—both to consumers and to high-quality sellers—appears to be rather low.
Report cards are also struggling to generate uniformly salutary seller responses. On bal- ance there is some evidence that disclosure motivates sellers to improve quality. However, there is also considerable evidence that sellers have attempted to game the system at the expense of consumers, especially if the measured quality does not cover all dimensions of quality or does not adjust for characteristics of consumers that can affect the rankings.
The literature on health care report cards is central to a larger economics literature on third party quality certification. A question that is often addressed in the broader literature but has been ignored to date by health economists is the incentives for certifiers. As Dranove and Jin (2010) observe, there are many studies showing that certifiers in fields ranging from finance to auto emissions testing produce biased quality evaluations. Studying the motivations of health quality certifiers, and the implications for their certifications, is potentially fertile ground for future research.
6. CONCLUDING REMARKS
Nearly five decades ago, Arrow (1963) explained how uncertainty and asymmet- ric information confound health care markets. Individuals are uncertain about the onset and expense of illness so they purchase insurance. When illness strikes, patients have poor information about what services they need and where to obtain them, so they delegate nearly all important medical decisions to their physician. These choices solve some problems but create others. Insurance leads to moral hazard. Delegation creates potential conflicts of interest and does not guarantee that patients are directed to the highest quality providers. Since Arrow’s seminal work, economists have clarified these problems and examined a range of regulatory and market mechanisms that might improve market performance.
Early studies presented a theory of harmful competition that was the direct result of moral hazard and delegation—the Medical Arms Race. Empirical research steeped in the tradition of the structureconductperformance paradigm showed that health care costs did seem to be higher in more competitive markets, although these studies never fully addressed concerns about endogeneity bias inherent in SCP regressions. As US markets transitioned to selective contracting, and the locus of purchasing power shifted from the individual patient to the insurer, evidence showed that prices were higher in more concentrated markets and that mergers also led to higher prices. In the past decade, empirical research has become more structural; these models confirm the adverse consequences of provider market power and are integral to antitrust analy- ses of mergers.
Payers in both competitive and regulated markets must design compensation rules that address the potential conflict of interest that arises from physician agency. A large theoretical literature studies the problem of how to compensate providers when qual- ity is unobservable. Pure fee-for-service payment leads to excessive costs and quality; pure prepayment does the opposite. These studies usually conclude that a mixed pay- ment mechanism is optimal under a variety of assumptions about provider motives and market structure. Even so, payers have been slow to adopt mixed payments.
In the past decade, public policy has shifted focus from concerns about costs to concerns about quality. The prevailing view is that without intervention by third party certifiers, markets generate suboptimal quality. As a result, report cards and pay for performance compensation rules have proliferated. The weight of the research evi- dence suggests that report cards and P4P have improved quality, although the effects seem small. Multitasking remains a problem and theorists have made little to no head- way towards designing optimal report cards and P4P programs.
Some analysts interpret Arrow (1963) as evidence that health care is different and defies economic analysis.13 This is a fundamental misunderstanding of Arrow’s work. Economics provides a powerful lens for studying health care, provided one is sensitive to the importance of institutional features such as insurance and physician agency. And it turns out that the basic principles of oligopoly theory and agency theory apply about as well in health care as they do in most other markets. Health care is different, but perhaps only in the sense that all industries are different. Even so, many questions remain unanswered:
• In a competitive health care system, prices are lower in competitive markets while
quality is comparable or higher. But are these outcomes superior to what can be
achieved in a regulated health care system?
• Mixed payment methods appear to best balance conflicting incentives to reduce
costs while maintaining quality. How can one use real world data to construct an
optimal compensation system?
• Third party certification affects both the demand for high-quality sellers and the
incentives to improve quality. But it has many unintended consequences. What are the elements of an optimal report card and/or pay for performance contract? How can one use real world data to construct an optimal report card/P4P contract?
• Most health economics research on markets, regulators, and certifiers answers the question “did an intervention have an effect?” rather than “how do we design an optimal intervention?” The latter requires a general equilibrium approach; welfare matters. It remains to be seen whether this involves careful consideration of exist- ing theories, such as Holmstrom and Milgrom (1991), or the development of new theories, such as Fong (2009). Likewise it is unclear whether empirical implemen- tation of theory will involve reduced-form analyses with careful identification, or more structural approaches, with equally careful identification.
