Lecture 10 - 10/5/99

Health Maintenance Organizations--Capitated Payment

• What capitation is.  Effects of incentives on insurers, physicians, hospitals
• What a closed panel HMO is
• Rand HIS study of 1 closed panel HMO v. fee-for-service.  Review why experiment.
• Other findings to be discussed later

Rand Study

• Nonexperimental findings
• Rand Health Insurance Study of HMO effects experimental
• Defined 3 groups: HMO experimental; HMO control; fee-for-service with c=0
• Found HMO experimental group used much less than c=0 group ($439 v. $609)
• Found HMO controls spent slightly more than HMO experimental ($439 v. $469)

Independent Practice Associations

• Halfway house between pure HMO and FFS
• Evidence on cost savings experience of IPAs cited by Phelps (Luft 1981) not up-to-date
• Concept of IPA evolving

Preferred Provider Organizations

• Fee discounting
• Incentive for patients to use
• Extreme form of PPO is exclusive provider organization (EPO)
• How PPOs achieve their savings
• Evidence on effectiveness of PPOs
• Legal issues--Arizona v. Maricopa County Medical Society

Point of Service Plans

• Hybrid
• Why growing in popularity
• Disadvantages from standpoint of cost containment

Competitive Health Plans

• What we mean by this
• Selective contracting law in California (1982)
• Source of market power is market share
• Recursive process: market power up --> lower price of care; lower price of care --> more market power

Effects of Growth of CMPs

• Lower cost growth in California (see Table 11.2, Phelps)
• Change in bargaining relationship between insurers, hospitals, doctors
• Growth of process innovations--distinguish between process and product innovations

Integrated Delivery Systems

• Vertical integration v. horizontal integration
• Why horizontal integration occurs: scale economies; scope economies; create market power
• Why vertical integration occurs: reduce transactions costs at various stages of production process
• Fragmented system under FFS

Physician Staffing under Alternative Organizational Arrangements

• % primary care; 48 Kaiser; 46 3 HMOs; 38% U.S. as whole
• Phelps definition of primary care does not include obstetrics
• Students look at differences in staffing for surgeons, hospital-based physicians, etc. in Table 11.3