Chapin White

Understanding Differences Between High- And Low-Price Hospitals: Implications For Efforts To Rein In Costs

Private insurers pay widely varying prices for inpatient care across hospitals. Previous research indicates that certain hospitals use market clout to obtain higher payment rates, but there have been few in-depth examinations of the relationship between hospital characteristics and pricing power. This study used private insurance claims data to identify hospitals receiving inpatient prices significantly higher or lower than the median in their market. High-price hospitals, compared to other hospitals, tend to be larger; be major teaching hospitals; belong to systems with large market shares; and provide specialized services, such as heart transplants and Level I trauma care. High-price hospitals also receive significant revenues from nonpatient sources, such as state Medicaid disproportionate-share hospital funds, and they enjoy healthy total financial margins. Quality indicators for high-price hospitals were mixed: High-price hospitals fared much better than low-price hospitals did in U.S. News & World Report rankings, which are largely based on reputation, while generally scoring worse on objective measures of quality, such as postsurgical mortality rates. Thus, insurers may face resistance if they attempt to steer patients away from high-price hospitals because these facilities have good reputations and offer specialized services that may be unique in their markets.

How Do Hospitals Cope with Sustained Slow Growth in Medicare Prices

ObjectiveTo estimate the effects of changes in Medicare inpatient hospital prices on hospitals’ overall revenues, operating expenses, profits, assets, and staffing. Primary Data SourceMedicare hospital cost reports (1996–2009). Study DesignFor each hospital, we quantify the year-to-year price impacts from changes in the Medicare payment formula. We use cumulative simulated price impacts as instruments for Medicare inpatient revenues. We use a series of two-stage least squares panel data regressions to estimate the effects of changes in Medicare revenues among all hospitals, and separately among not-for-profit versus for-profit hospitals, and among hospitals experiencing real price increases (“gainers”) versus decreases (“losers”). Principal FindingsMedicare price cuts are associated with reductions in overall revenues even larger than the direct Medicare price effect, consistent with price spillovers. Among not-for-profit hospitals, revenue reductions are fully offset by reductions in operating expenses, and profits are unchanged. Among for-profit hospitals, revenue reductions decrease profits one-for-one. Responses of gainers and losers are roughly symmetrical. ConclusionsOn average, hospitals do not appear to make up for Medicare cuts by “cost shifting,” but by adjusting their operating expenses over the long run. The Medicare price cuts in the Affordable Care Act will “bend the curve,” that is, significantly slow the growth in hospitals’ total revenues and operating expenses.

Effects of Health Care Payment Models on Physician Practice in the United States

The project reported here, sponsored by the American Medical Association (AMA), aimed to describe the effects that alternative health care payment models (i.e., models other than fee-for-service payment) have on physicians and physician practices in the United States. These payment models included capitation, episode-based and bundled payment, shared savings, pay for performance, and retainer-based practice. Accountable care organizations and medical homes, which are two recently expanding practice and organizational models that frequently participate in one or more of these alternative payment models, were also included. Project findings are intended to help guide efforts by the AMA and other stakeholders to make improvements to current and future alternative payment programs and help physician practices succeed in these new payment models-i.e., to help practices simultaneously improve patient care, preserve or enhance physician professional satisfaction, satisfy multiple external stakeholders, and maintain economic viability as businesses. The article provides both findings and recommendations.

Variation in inpatient hospital prices and outpatient service quantities drive geographic differences in private spending in Texas.

OBJECTIVE To measure the contribution of market-level prices, utilization, and health risk to medical spending variation among the Blue Cross Blue Shield of Texas (BCBSTX) privately insured population and the Texas Medicare population. DATA SOURCES Claims data for all BCBSTX members and publicly available CMS data for Texas in 2011. STUDY DESIGN We used observational data and decomposed overall and service-specific spending into health status and health status adjusted utilization and input prices and input prices adjusted for the BCBSTX and Medicare populations. PRINCIPAL FINDINGS Variation in overall BCBSTX spending across HRRs appeared driven by price variation, whereas utilization variation factored more prominently in Medicare. The contribution of price to spending variation differed by service category. Price drove inpatient spending variation, while utilization drove outpatient and professional spending variation in BCBSTX. The context in which negotiations occur may help explain the patterns across services. CONCLUSIONS The conventional wisdom that Medicare does a better job of controlling prices and private plans do a better job of controlling volume is an oversimplification. BCBSTX does a good job of controlling outpatient and professional prices, but not at controlling inpatient prices. Strategies to manage the variation in spending may need to differ substantially depending on the service and payer.

Cutting Medicare Hospital Prices Leads to a Spillover Reduction in Hospital Discharges for the Nonelderly

OBJECTIVE To measure spillover effects of Medicare inpatient hospital prices on the nonelderly (under age 65). PRIMARY DATA SOURCES Healthcare Cost and Utilization Project State Inpatient Databases (10 states, 1995-2009) and Medicare Hospital Cost Reports. STUDY DESIGN Outcomes include nonelderly discharges, length of stay and case mix, staffed hospital bed-days, and the share of discharges and days provided to the elderly. We use metropolitan statistical areas as our markets. We use descriptive analyses comparing 1995 and 2009 and panel data fixed-effects regressions. We instrument for Medicare prices using accumulated changes in the Medicare payment formula. PRINCIPAL FINDINGS Medicare price reductions are strongly associated with reductions in nonelderly discharges and hospital capacity. A 10-percent reduction in the Medicare price is estimated to reduce discharges among the nonelderly by about 5 percent. Changes in the Medicare price are not associated with changes in the share of inpatient hospital care provided to the elderly versus nonelderly. CONCLUSIONS Medicare price reductions appear to broadly constrain hospital operations, with significant reductions in utilization among the nonelderly. The slow Medicare price growth under the Affordable Care Act may result in a spillover slowdown in hospital utilization and spending among the nonelderly.

Medicare and Private Spending Trends From 2008 to 2012 Diverge in Texas

The recent relatively slow growth in health care spending masks significant differences among payers, clinical settings, and geographic areas. To better understand the spending slowdown, we focus on 2008-2012 trends in Texas among Medicare fee-for-service beneficiaries and enrollees in Blue Cross Blue Shield of Texas (BCBSTX). Spending per person for Medicare grew only 1.5% per year on average, compared with 5.2% for BCBSTX. In Medicare, utilization rates were relatively flat, while prices grew more slowly than input prices. In BCBSTX, spending growth was driven by increases in negotiated prices, in particular hospital prices. We find that geographic variation declined sharply in Medicare, due to drops in spending on post–acute care in two notoriously high-spending regions but rose slightly in BCBSTX. The aggregate spending trends mask two divergent stories: spending growth in Medicare is very slow, but price increases continue to drive unsustainable spending growth among the privately insured.

An Assessment of the New York Health Act: A Single-Payer Option for New York State

The New York State legislature is considering single-payer legislation — the New York Health Act — that would create a state-sponsored single-payer health program called New York Health to provide coverage to all residents of the state. This reports authors assessed how the plan would affect health care utilization and costs in the state, estimating its effects on key outcomes and comparing them with future outcomes under the status quo.

MACRA's Effects on Medicare Payment Policy and Spending

The Medicare Access and CHIP Reauthorization Act (MACRA), enacted by Congress in 2015, was intended to eliminate a long-standing conundrum about how to determine Medicare reimbursement rates for physician services. MACRA also represents an aggressive expansion of the value-based payment model in Medicare, consistent with the ambitious goals set by former U.S. Department of Health and Human Services Secretary Sylvia Mathews Burwell.

The RAND Health Care Payment and Delivery Simulation Model (PADSIM): Concepts, Methods, and Examples

This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited. Permission is given to duplicate this document for personal use only, as long as it is unaltered and complete. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial use. For information on reprint and linking permissions, please visit The RAND Corporation is a research organization that develops solutions to public policy challenges to help make communities throughout the world safer and more secure, healthier and more prosperous. RAND is nonprofit, nonpartisan, and committed to the public interest. RANDs publications do not necessarily reflect the opinions of its research clients and sponsors. R® is a registered trademark. iii Preface This report describes concepts and mechanics of RANDs Health Care Payment and Delivery Simulation Model (PADSIM). The purpose of this report is to provide analysts, both within and outside RAND, background on the motivation for building the model; give them an understanding of the conceptual underpinnings of the model; and provide an overview of how to operate the model. We anticipate that this report will be updated as the model continues to be revised and applied to new research questions. Funding for this study was provided by philanthropic contributions from RAND supporters and income from operations.

Evaluation of Policy Options for Increasing the Availability of Primary Care Services in Rural Washington State

The Washington State legislature has recently considered several policy options to address a perceived shortage of primary care physicians in rural Washington. These policy options include opening the new Elson S. Floyd College of Medicine at Washington State University in 2017; increasing the number of primary care residency positions in the state; expanding educational loan-repayment incentives to encourage primary care physicians to practice in rural Washington; increasing Medicaid payment rates for primary care physicians in rural Washington; and encouraging the adoption of alternative models of primary care, such as medical homes and nurse-managed health centers, that reallocate work from physicians to nurse practitioners (NPs) and physician assistants (PAs). RAND Corporation researchers projected the effects that these and other policy options could have on the states rural primary care workforce through 2025. They project a 7-percent decrease in the number of rural primary care physicians and a 5-percent decrease in the number of urban ones. None of the policy options modeled in this study, on its own, will offset this expected decrease by relying on physicians alone. However, combinations of these strategies or partial reallocation of rural primary care services to NPs and PAs via such new practice models as medical homes and nurse-managed health centers are plausible options for preserving the overall availability of primary care services in rural Washington through 2025.