Hospital reimbursement, competition and outcome Alistair McGuire (LSE)

1. Hospital reimbursement, competition and outcome Alistair McGuire (LSE) [based on work with colleagues Zack Cooper, Stephen Gibbons and Irene Papanicolas (LSE)] Turkish Health Economics Conference, Ankara February, 2011

2. Motivation • History of low-powered reimbursement incentives in the hospital sector • Retrospective reimbursement with little cost-sharing • Pervasive ‘quasi-market’ reforms in public services in UK, US and elsewhere in Europe • Movement to prospective reimbursement with cost-sharing • Diagnostic Related Group pricing prevailing • Increased competition and patient choice

3. Motivation • Against backdrop of: • Ideological debate over whether these reforms are appropriate in education and health, where equity is a prime concern • Reforms driven by ideology • Theoretical ambiguity over the impact of competitive reforms, both in terms of equity and efficiency • Little empirical evidence on health care reforms on outcomes • Very mixed evidence on efficacy • New evidence beginning to come through

4. Importance for Turkey • Hospitals a large component of health care expenditure • Approximately 40-45% of total health care expenditure • Agreement to introduce output-performance based payment system • 2004 agreement and pilots; 2005 onwards specification of quality outcome measures • Issues surrounding information, measurement of quality • Patient care, satisfaction, access etc • Important developments elsewhere • DRGs & competition for budgets

5. DRGs • DRGs are weighted according to factors influencing the cost of treatment • used to pay hospitals according to the indices of case weighted admissions, adjusting for other hospital factors such as location and status of the hospital • Large variation amongst the motivation, system of design, and implementation of DRG systems in different countries • all these countries complement their case-based funding by other forms of payment (such as fixed budgets) • for some this is only until they fully implement case-based funding for all hospital costs (France, Germany and the Netherlands) • Objectives for introducing case-based funding also vary: • Sweden and Australia have introduced DRG payments as a method of reducing waiting times • Austria, Germany, France, UK and Australia aim increase efficiency and reduce costs • Sweden, France and the Netherlands mention increasing transparency

6. DRGs contd. • DRG prospective payment system can be complemented by competition for funds • Nash equilibrium game under asymmetry of information using yardstick competition to push P=AC (possibly P=MC) • Practical difficulties – but that’s the real world; all regulation incurs costs • As DRG plus competition is a risk-sharing payment scheme pushing P=AC new technology has to be regulated too • HTAs and cost-effectiveness analysis

7. Existing research: theory • DRGs • Costs become more transparent • Length of stay tends to fall • Cream-skimming and DRG “creep” • Competition with • Variable prices: effect of greater competition on quality ambiguous • Fixed prices: greater competition leads to higher quality

8. Existing research: empirics (1) DRGs • Evidence from the US Medicare DRG payments, under the Prospective Payment System (PPS), indicate • reductions in average hospital length of stay (Feder et al., 1987; Newhouse and Byrne, 1988; Shen, 2003) • reductions in costs (Cutler, 1995; Shen, 2003) • sometimes with apparent increases in the length of stay of long-stay patients (Newhouse and Byrne, 1988) • short term shift of treatment from DRG financed inpatient settings to outpatient clinics which were otherwise financed (Cutler, 1998; Ellis & Vidal-Fernandez, 2007; Newhouse and Byrne, 1988) • Evidence of patient selection and cream-skimming was found by • Newhouse (1989) patients in unprofitable DRGs were more likely to be found in ‘hospitals of last resort’ suggesting patient selection by profitability • Meltzer et al. (2002) who found greater cost decreases for high cost patients than low cost patients, mirrored by a pattern of reductions in more expensive DRGs • Ellis & McGuire (1996) identified, under Medicaid’s mental health services in New Hampshire where expenditures for the sickest patients were reduced under prospective payment • Little evidence of DRG creep • Carter et al. (1990) investigated changes in Medicare’s Case Mix Index between 1986-1987 found no evidence to support DRG creep or upcoding

9. Existing research: empirics (1) Competition and outcomes • US evidence generally mixed • Studies with variable prices (so not surprising) no competition effect on outcomes • Gowrisankaran and Town (2003), Ho and Hamilton (2000) Sari (2002) • Studies of fixed prices show (quality) competition improves outcomes • Shortell and Hughes (1998)Kessler and McClellan (2000)Shen (2003)Kessler and Geppert (2005)

10. Institutional context • Emphasis on UK context • DRG reimbursement plus competition • Good case-study of the complementarities of organisational structure, reimbursement practices and effect on outcomes • Recent results

11. Competition in the NHS: a brief history (1) Note: With the recent change in Government further reforms, essentially the re-introduction of an internal market centered around individual GP budget holders as funders, and the removal of fixed hospital prices are about to be introduced. It is, at this time too early to evaluate these recent reforms empirically.

12. Competition in the NHS: a recent history • 2006: all patients given choice of 4-5 providers for elective procedures: electronic bookings system “Choose and book” • 2007: “NHS Choices” website with information on provider quality • 2008: Choice extended to any provider in England • http://www.nhs.uk/Tools/Pages/Patientchoice.aspx • 2006 is the start of our “policy on” period • We estimate effects on trends, given post-2006 innovations and likely lags in impacts

13. Four central elements of the government’s market-based reforms Demand Side - Patient choice - Publicly provide info on quality Supply Side - Increase capacity - Public & private providers Competition Between Providers Regulation - Creation of Healthcare Commission & Monitor • Transactional Reform • Money follows users’ choice - PBR • Fixed, DRG-based prices

14. However, significant waits for elective surgery Percent of adults waiting for elective or non-emergency surgery in 2002 AUS CAN GER NETH NZ UK US AUS CAN GER NETH NZ UK US Source: 2007 Commonwealth Fund International Health Policy Survey. Data collection: Harris Interactive, Inc.

15. British mortality rate for AMI does not compare favorably 30-Day AMI mortality from AMI, International Comparison, 1997 - 2004 Data: OECD Health Data 2008 (June 2008)

16. Poor survival from cancer Data: OECD Health Data 2008 (June 2008)

17. Methods

18. Defining competition (1) • US literature traditionally favours Hirschman-Herfindahl Indices (HHI) of market concentration • Sum of squared market shares • Others e.g. Propper et al for UK use number of hospitals, or number of hospitals per capita in market area • Key issue either way is defining the relevant market area…

19. Defining competition (1) Markets are usually defined as hospital-centred. Potential market area choices: • Fixed radius zones highly sensitive to urban-rural patient group composition  • Travel-time zones preferable, but in practice highly correlated with 1.  • Variable radius, based on patient flows e.g. radius corresponding to 75th percentile hospital-home distance of patients: • Potential endogeneity issues as radius depends on popularity of hospitals  r0

20. Defining competition (3): HHI or not • HHI combines information on number of providers and equity in shares • Competition measured as lower if there’s one dominant player in the market  • HHI centred at a hospital is seriously endogenous • A high quality hospital that attracts all patients appears to be the centre of a non-competitive market 

21. Defining competition (4): previous strategies • Kessler and McLellan predict hospital attendance from patient demographics and distances, then create hospital-level HHIs from these predicted shares • Non-linear 1st stage  • Propper at al (2004,2008) use 30 minute drive-times, but with no patient data • Index based on numbers of hospitals within drive time of each other • Or (better) based on proportion of catchment area population that can access k other hospitals

22. Defining competition (5): our strategy • Cooper et al (2010) use HHI’s with variable radius market shares, but try to mitigate endogeneity issues: • HHIs based on elective clinical procedures, whereas outcome is non-elective emergency procedure (AMI, no patient choice) • Define GP-centred markets: elective hospital choices made at home or GP (hip replacements, cataracts, hernias, knee operations) • HHI/markets not mechanically linked to the quality/ popularity of the hospital that the patient ends up at for emergency AMI treatment 

23. Our competition measure

24. 95% variable GP radius2002(all procedures)

25. 95% variable GP radius2008(all procedures)

26. 30 minute GP radius(cataracts)

27. Measuring health care quality: all recent UK studies • Emergency admissions for Acute Myocardial Infarction (AMI – “heart attack” ICD I21 I22) • Indicator that patient died within 30 days • 30 day mortality adopted in the literature as a litmus/canary test of health care quality • Highly correlated with other aspects of health care quality in hospitals • General decline in death rates due to technology: e.g. angioplasty, clot-busters • Scope for variable adoption of technology

28. AMI mortality was falling steadily over time • Public health interventions • Increase in access to angioplasty • Speedier access to angioplasty and thrombolysis

29. Data and controls Data - • NHS patient administrative data for England • Trust, hospital site and GP postcodes • Patient home postcode removed after linking Census at OA level • Link postcodes to geographical coordinates • Minimum drive times from GP to sites computed using generalised primary road network (DfT) on ArcGIS Controls • Patient: age, gender, ethnicity, Charlson co-morbidity score, IMD income deprivation • Procedure: day and month of admission, angioplasty, distance from GP to hospital attended • Hospital: teaching, Foundation status, number of AMIs treated per year • Hospital site dummies, Strategic Health Authority trends, GP fixed effects

30. Estimation strategy • Difference-in-difference approach • Examines the effect of an intervention by comparing the INTERVENTION GROUP AFTER INTERVENTION both to the INTERVENTION GROUP BEFORE INTERVENTION and to some OTHER CONTROL GROUP • Could simply look at intervention group before and after intervention to deduce effect • But other confounding influences • Diffs-in-Diffs method uses a CONTROL GROUP to subtract out other changes at the same time, assuming that these other changes were identical between the treatment and control groups • Weakness if other changes not identical • Must also assume that composition of the two groups remains the same over the course of the intervention Quality measure Treatment effect quality in policy state Counterfactual in policy state quality in control state Time Before After

31. Estimation strategy (1) • Dif-in-dif with continuous treatment and policy-induced trend change, 02-08 (t=2 to 8) • Coefficient of interest is which is the mortality decline attributable to competition post-2006 • effect of difference in competition on mortality, per year post policy period • is the baseline rate of decline in mortality post-2006 in low competition locations • is the baseline rate of decline in mortality pre-2006 in low competition locations • is trend in mortality in competition areas post-2006

32. Key challenge is to avoid endogeneity between competition and quality Quality Competition • Strategies employed: • Use difference-in-difference estimator • Center markets on residential locations, not hospital location • Measure elective competition; outcome is for emergency procedure where patients have little/no choice • Implement IV estimates • Potential instrument: variance in GP-site distance (conditional on mean GP-site distance) • Series of robustness check to show that reforms arise post reform and not from spurious associations with urban density

33. Results

34. Propper et al (2004, 2008) • UK evidence on clinical quality effects • environment with variable prices • Propper et al (JPubE 2004, EJ 2008): • Competition in the 1990s linked to higher mortality • 2008 paper compares the 1992-1996 period with 1991 and 1997-1999 • Finds that competition worked against the general decline in AMI mortality created by technological change • Hospitals did not deliberately worsen AMI mortality, but as competitive pressures increased resources were shifted from quality domains that were not fully observable and verifiable such as AMI-mortality to those, such as waiting times for elective procedures, that were easily measured and were being targeted

35. Propper (JPubE, 2004)

36. Propper (EJ, 2008)

37. The relationship between competition and quality changes over time; after competition and fixed prices introduced

38. Baseline results: 95% share variable radius: Cooper et al (2010)

39. Counts not HHIs

40. IV: Variation of GP-site distances (nearest 4)

41. Robustness checks

42. Alternative market definitions: Cooper et al (2010) LSEHealth WP16 • Robust evidence of faster rate of decline in AMI mortality post-2006 for patients from high-competition areas • Essentially same findings • With different definitions of competition • Even with Instrumental Variable approach • Gaynor et al (2010) similar findings for UK 2002-2008 using long differences estimation • Competition for funds under an exogenous fixed price regime leads to quality improvement

43. Conclusions • Evidence suggests NHS choice reforms from 2006 on resulted in improved outcomes in geographically competitive market areas, relative to non-competitive areas • This is during a period of fixed prices and in contrast to earlier competition effect under variable prices • Current reforms attempting to increase competition further BUT moving back to variable prices so predicted outcome is ambiguous at best!

44. Conclusions • Given limited budget competition for funds in Turkey may be useful • DRG system helps develop information and data • Comparative • Uses yardstick competition as a basis • The future for Turkey?

45. Conclusions • Retrospective hospital payment is low-powered incentive • DRG prospective payment is useful but… • Needs to be complemented with competitive market structure • Let hospitals compete for funds • As DRG payment forces reimbursement price to current average costs need to augment with Health Technology Assessment agencies and cost-effectiveness