Stephen Zuckerman

Measuring hospital efficiency with frontier cost functions.

This paper uses a stochastic frontier multiproduct cost function to derive hospital-specific measures of inefficiency. The cost function includes direct measures of illness severity, output quality, and patient outcomes to reduce the likelihood that the inefficiency estimates are capturing unmeasured differences in hospital outputs. Models are estimated using data from the AHA Annual Survey, Medicare Hospital Cost Reports, and MEDPAR. We explicitly test the assumption of output endogeneity and reject it in this application. We conclude that inefficiency accounts for 13.6 percent of total hospital costs. This estimate is robust with respect to model specification and approaches to pooling data across distinct groups of hospitals.

A House Is Not A Home: Keeping Patients At The Center Of Practice Redesign

The patient-centered medical home has been promoted as an enhanced model of primary care. Based on a literature review and interviews with practicing physicians, we find that medical home advocates and physicians have somewhat different, although not necessarily inconsistent, expectations of what the medical home should accomplish-from greater responsiveness to the needs of all patients to increased focus on care management for patients with chronic conditions. As the medical home concept is further developed, it will be important to not overemphasize redesign of practices at the expense of patient-centered care, which is the hallmark of excellent primary care.

Characteristics of Occasional and Frequent Emergency Department Users: Do Insurance Coverage and Access to Care Matter?

ObjectiveThe objective of this study was to explore how insurance coverage, access to care, and other individual characteristics are related to the large differences in emergency department (ED) use among the general population. Materials and MethodsWe used the 1997 and 1999 National Survey of America’s Families, a nationally representative sample. People were classified into 3 ED use levels based on the number of visits over the 12 months before the survey: non-ED users (zero visits), occasional users (1 or 2 visits), or frequent users (3 or more visits). We used a multinomial logit model to estimate the effect of insurance status and other factors on levels of ED use, and to compute the odds ratios of being occasional and frequent users as opposed to nonusers among various subpopulations. ResultsPeople in fair/poor health are 3.64 times more likely than others to be frequent ED users as compared with nonusers. The uninsured and the privately insured adults have the same risk of being frequent users, but publicly insured adults are 2.08 times more likely to be frequent users. Adults who made 3 or more visits to doctors are 5.29 times more likely to be frequent ED users than those who made no such visits. ConclusionThe uninsured do not use more ED visits than the insured population as is sometimes argued. Instead, the publicly insured are overrepresented among ED users. Frequent ED users do not appear to use the ED as a substitute for their primary care but, in fact, are a less healthy population who need and use more care overall.

How did Medicare's prospective payment system affect hospitals?

Using data from 1982 and 1984, we examined how Medicares prospective payment system affected hospitals. The study showed that hospitals paid through the prospective payment system had significantly lower increases in Medicare costs and greater declines in Medicare use than did other hospitals. Unlike these other hospitals, for which Medicare costs approximately equaled Medicare revenues, hospitals receiving prospective payment kept Medicare costs from rising as fast as Medicare revenues, earning the profit that the prospective payment system allowed. The opportunity to earn a profit led hospitals to slow increases in Medicare costs, regardless of the level of revenue constraint. However, the more the prospective payment system constrained hospitals revenues, the more hospitals slowed increases in Medicare costs. In the most constrained hospitals, slower increases in Medicare costs were accompanied by slower increases in total hospital spending. The least constrained hospitals slowed Medicare cost increases the least and did not show their overall spending. These hospitals nevertheless increased their profit margins the most, since the prospective payment systems federal rate paid them the highest rates relative to base-year costs. Since federal rates produced extra profits, not extra cost containment, their appropriateness is questionable. The prospective payment system should be modified to eliminate windfalls while continuing to promote cost containment.

FINANCIAL PRESSURE AND COMPETITION : CHANGES IN HOSPITAL EFFICIENCY AND COST-SHIFTING BEHAVIOR

Using data from the American Hospital Association and the Medicare program, the authors analyzed the effects of financial pressure and market competition on changes in several measures of performance of 1,435 acute care hospitals between 1987 and 1989. Over the observation period, the least profitable hospitals constrained their growth in total expenses to half that for the most profitable hospitals (13.3% versus 27.6%) by limiting the growth of their staffs and their total assets. These changes were associated with a reduction in inefficiency of 1.8% (11.2%) compared with a very slight increase in inefficiency for the highest profit group. Similarly, hospitals in highly competitive markets controlled expenses relative to those in the least competitive areas. However, they also experienced slower revenue growth than did less competitive hospitals so that, in relative terms, their profit rates fell. The authors found no evidence to suggest that financial pressures created by either low profits or market competition resulted in hospitals engaging in cost-shifting. The authors conclude that health care reforms or market forces that put financial pressures on hospitals can result in cost-containment and improved efficiency without significant cost-shifting.

National Estimates of the Effects of Mandatory Medicaid Managed Care Programs on Health Care Access and Use, 1997-1999

Objective:We sought to explore how mandatory Medicaid managed care programs affect access to care and use among full-year Medicaid beneficiaries not receiving SSI or Medicare. Research Design:We used data from the 1997 and 1999 National Survey of Americas Families. To establish what Medicaid beneficiaries’ access and use would have been in the absence of Medicaid managed care (MMC) and to control for unobserved county differences, we estimated difference-in-difference models using a comparison group of privately insured individuals who we would not expect to be affected by MMC. Results:We found weaker effects of MMC programs for children than adults. The strongest result is that mandatory HMO programs lower the probability of Medicaid adults using emergency rooms, when implemented alone or in combination with Primary Care Case Management (PCCM) programs. PCCM programs reduced the number of visits among adults but had little effect on other measures of access and use. There was less preventive care in mandatory HMO counties for women, suggesting that the federally required external quality review may be appropriate. Conclusion:The effects of Medicaid managed care vary with the type of program, and policy makers should not expect programs that rely on PCCMs to have the same effects as those that incorporate mandatory HMO enrollment. Moreover, none of the program models had strong and consistent effects across the indicators of access and use that we considered.

Toward Universal Coverage in Massachusetts

This paper presents several options designed to help the Commonwealth of Massachusetts move to universal health insurance coverage. The alternatives all build upon a common base that includes an expansion of the Medicaid program, income-related tax credits, a purchasing pool, and government-sponsored reinsurance. These measures in themselves would not yield universal coverage, nor would an employer mandate by itself. We show that an individual mandate, and an employer mandate combined with an individual mandate, both would yield universal coverage with a relatively small increase in government costs relative to state gross domestic product and current health spending. The cost of an employer mandate—with a “pay or play” design—is sensitive to the payroll tax rate and base, the number and kind of exemptions, and whether workers whose employers “pay” receive discounts when they purchase health insurance. The development of these alternatives and their analyses contributed to the eventual health care compromise that emerged in Massachusetts in April 2006.

MassHealth Succeeds in Expanding Coverage for Adults

This study provides the first rigorous evaluation of the impacts of MassHealth, Massachusetts ambitious effort in the late 1990s to expand coverage to the entire low-income population. We find clear evidence that MassHealth led to an expansion of insurance coverage relative to what was happening to similar populations in comparison states. The success of MassHealth provides support for the value of investing in ambitious new state efforts to find effective strategies to reach the remaining uninsured populations. While current budget shortfalls have forced many states, including Massachusetts, to scale back their expansion efforts, the current economic downturn is not permanent. Understanding the impacts of the expansion efforts in Massachusetts adds to the base of knowledge that will be critical for guiding states when the economy recovers and the resources needed for expansion again become available.

Measuring prices of Medicare physician services.

This study develops two sets of price indices for Medicare physician services. The first measures price changes, and the second measures geographic price differentials. The indices can be used to adjust Medicare physician spending data to examine growth or variations in the volume and intensity of services. In both instances, it is necessary to apply an index form that reflects both the rapid changes and variability in the mix of physician services received by Medicare beneficiaries and their relative importance. This suggests that an index based on a fixed basket of services (e.g., a Laspeyres index) can produce a biased measure of price. An alternative methodology based on the Fishers Ideal Index form was used. This index allows service weights to vary over time and across areas. In the case of price change, the index is “chained” to acknowledge the introduction of new services over several years. It is concluded that the Fishers Ideal approach is essential for cross-sectional price comparisons, in light of the high variability in service mix across areas. In measuring price changes, it was found that “chaining” was more important empirically than allowing the relative importance of services to change between years. During the 1985–1989 study period, Medicare payment rates grew, on average, by 3.5% annually. This rate varied across both time and types of services as a result of differential fee updates and explicit pricing policies implemented by Medicare (e.g., reductions in payments for “overvalued” procedures). Cross-sectionally, our results show that 1988 fees in the highest-priced areas were more than 1.5 times those in the lowest-priced areas.

Strategies for Implementing Global Budgets

Implementing global budgets requires setting a desired level of spending as well as establishing a set of policies to assure the budget will be met. Four alternative approaches are analyzed: one relies on all-payer rate setting coupled with volume controls; the second is a system of premium regulation that controls both the levels and rates of insurance premium increase; in another system, price competition among insuring organizations limits growth in spending while incorporating a global budget that limits the aggregate costs of all premiums; finally, either managed competition or premium regulation is combined with all-payer rate setting. The fourth model is singled out for its ability to control costs. An independent policy toward capital expenditures could increase the likelihood of success under any of the strategies.