Oxford Outcomes U.S. Health Economics has broad expertise and experience in studying the economic features of health care markets. A recent example is a study of the impact of specialty hospital market entry on general hospital operating margins. Other studies of health care markets include assessing the effects of regulation and competition on costs, quality, and access, identifying relevant product and geographic markets, and regional economic impact analysis of changes in the health care industry.
We also have expertise and experience in the intersection of market analysis and health care management and strategy, particularly in how it relates to current trends in managed care, provider contracting, provider payment mechanisms, and organizational innovation (e.g., horizontal and vertical integration), and health care labor markets. Related areas of expertise include health insurance (e.g., product strategies and utilization analyses), pharmaceutical markets, demand and supply forecasting, and antitrust analysis.
Oxford Outcomes researchers have extensive experience in using large databases to analyze health care markets, including Medicare and Medicaid claims databases, commercial health plan claims databases, Medstat MarketScan® claims databases, state-level discharge abstracts, Medicare Cost Reports, American Hospital Association Annual Survey data, the Area Resource File, and others.
Market and Business Analysis
- The Effects of Endogenous Market Entry of Physician-Owned Hospitals on Medicare Expenditures: An Instrumental Variables Approach.
This study examines the effect of physician-owned hospitals (POHs) on Medicare per enrollee expenditures at the metropolitan area (MSA) level nationwide, spanning the eight-year time period from 1998 to 2005. The study uses fixed-effects panel data estimation with instrumental variables to account for the bias introduced by the likelihood that POHs are more likely to open in high-growth / high-demand markets (i.e., POH presence is endogenous to medical care expenditures). After controlling for other variables that are likely to affect expenditures (especially the age and sex distribution of the MSA), we find no association between POH presence and Medicare expenditures per enrollee at the MSA level. The results are robust to changes in model specification, estimation technique and definition of geographic market. These findings suggest that the "demand inducement" aspects of physician ownership of acute care hospitals (if any) has no meaningful impact on market-level Medicare expenditures per enrollee. Current policies based on an assumption that POHs are associated with significant increases in total expenditures may need to be reassessed.
- Business Development and Strategic Market Expansion Opportunities for a High-Performing Hospital System.
Oxford Outcomes U.S. Health Economics conducted detailed economic assessments of targeted geographic expansion markets for a high-quality, high-reputation hospital system. Analyses included inpatient and outpatient supply features of target markets, demand and reimbursement features of the target markets, and overall assessment of target market economic conditions.
- The Effects of Specialty Hospitals on the Financial Performance of General Hospitals, 1997-2004.
Hospital specialization has become a controversial topic in recent years, culminating in a moratorium issued in 2003 by Congress directing the Centers for Medicare and Medicaid Services to cease payments to new physician-owned specialty hospitals for those Medicare and Medicaid patients referred by physicians with a financial interest in the facility. The moratorium was in part a response to concern among incumbent general hospitals that specialized facilities harm the community by undermining the ability of general hospitals to internally cross-subsidize unprofitable services. This paper focuses on one important economic question which often arose during these debates: does the presence of specialty hospitals in a market affect general hospitals’ financial performance? We estimate longitudinal fixed effects models for a national panel of short-term acute care hospitals for the eight-year time period 1997 to 2004. Models are estimated for general hospital patient-care revenue, costs and operating margins. We find that the presence of one or more new or established specialty hospitals in a market has a negative effect on general hospital costs. We also find that the presence of one or more established specialty hospitals has a positive effect on general hospital operating margins. Results were consistent across several different modeling approaches. The implication is that the presence of specialty hospitals encourages greater efficiency on the part of incumbent general hospitals, and the existence of profits attracts market entry. Our findings question the contention that competition from specialty hospitals harms general hospitals financially. Citation: Schneider, JE, RL Ohsfeldt, MA Morrisey, P Li, TR Miller, & BA Zelner. Inquiry (2007) 44:321-334. Available through many library search engines and for purchase from the journal Inquiry
- Oxford Outcomes U.S. Health Economics Releases New Review of Research on Specialty Hospitals
Oxford Outcomes U.S. Health Economics recently released a report summarizing empirical research on specialty hospitals to date. The report reached six conclusions: (1) Four out of five studies show that specialty hospitals have higher procedural volumes than their general hospital counterparts. This strongly suggests that specialty hospitals are able take advantage of the well-established outcomes and learning benefits of high volume. (2) Only two of six studies found that specialty hospitals result in higher market-area level utilization, and only one of those studies employed rigorous statistical methods. The one rigorous study, however, failed to account for the selection effects of specialty hospitals purposely locating in markets with high demand and high extant utilization rates. (3) The results on quality appear to be unambiguously positive, with all five studies that examined quality differences finding that specialty hospitals, even after controlling for patient severity, generate better health outcomes. (4) The results on efficiency are also very consistent, with five of six studies showing that specialty hospitals have shorter length of stays, lower costs, or both. Most of these studies adjust for patient severity. (5) Specialty hospitals select healthier patients, but there is no evidence to suggest that such selection is “inappropriate” in the sense that it differs from the normal triage strategies employed in medical care. Sicker patients require more intensive care settings; healthier patients do not. (6) Specialty hospitals do not subject their general hospital counterparts to undue hardship. One peer-reviewed study even found that the presence of specialty POHs actually exerts a kind of fiscal discipline on competing general hospitals, leading the latter to reduce costs and improve efficiency .
- The Effect of Physician and Health Plan Market Concentration on Prices in Commercial Health Insurance Markets
The objective of this project was to describe the market structure of health plans (HPs) and physician organizations (POs) in California, a state with high levels of managed care penetration and selective contracting. First we calculate Herfindahl-Hirschman (HHI) concentration indices for HPs and POs in 42 California counties . We then estimate a multivariable regression model to examine the relationship between concentration measures and the prices paid by HPs to POs. Price data is from Medstat MarketScan databases. The findings show that any California counties exhibit what the Department of Justice would consider high HHI concentration measures, in excess of 1800. More than three quarters of California counties exhibit HP concentration indices over 1800, and 83 percent of counties have PO concentration levels in excess of 1800. Half of the study counties exhibited PO concentration levels in excess of 3600, compared to only 24 percent for plans. Multivariate price models suggest that PO concentration is associated with higher physician prices (p ≤ 0.05), whereas HP concentration does not appear to be significantly associated with higher outpatient commercial payer prices.
The Business of Health: The Role of Competition, Markets, and Regulation
(Book, AEI Press).
There is ample room for improvement in the U.S. health care system, particularly in the case of the uninsured. But there is no consensus about how to improve the U.S. system. Proponents of sweeping reforms point to the decentralized, fragmented health system in the U.S. as a key limitation, and suggest that the more centralized systems in other developed nations are models to be emulated. However, many of those systems have important shortcomings, such as unsustainable growth in spending and intolerable lapses in functional access.
It is not at all clear whether the benefits of centralized control would offset the costs of a centralized system were it to be implemented in the United States. The balance of evidence suggests that markets have much to offer. Competition in health care spurs innovation, induces efficiency, and enhances quality, just as it does in other types of markets and industries. We offer examples in the areas of hospital competition, health plan regulation, and prescription drug advertising.
The primary challenge of health system reform is deciding which components of the system are suitable for market competition, and which components of the system require more direct government control. While a hybrid system which supplements market forces with government control might, as a whole, represent a dominant design, it is clear that the current U.S. system fails to take full advantage of the benefits of market forces. Some areas of potential improvement include: (1) the reduction, revision, or elimination of laws and regulations that inhibit the functioning of markets; (2) the development of a more coherent strategy to evaluate new medical technologies and services; (3) the infusion of transparency into the making of contracts between health plans and enrollees; (4) redesigning health insurance to imbue a greater degree of price sensitivity within health services transactions, and (5) improved marketing and coordination among existing public insurance programs. Each one of these elements has something to offer. The key to improving health care delivery lies in striking a balance that maximizes all of the benefits of markets and consumer choice while using the most appropriate and efficient government instruments to extend access to care for those who otherwise would not have access to needed services.
- Economic Rationale for Hospital Specialization.
Hospital specialization has become a controversial topic in recent years, culminating in a moratorium issued in 2003 by Congress directing the Centers for Medicare and Medicaid Services to cease payments to new physician-owned specialty hospitals for those Medicare and Medicaid patients referred by physicians with a financial interest in the facility. The moratorium was in part a response to concern among incumbent general hospitals that specialized facilities harm the community by undermining the ability of general hospitals to internally cross-subsidize unprofitable services.
This project focuses on one important economic question which continually arose during these debates: is there an economic rationale for hospital specialization? Some argue that specialty hospitals offer higher quality, more consumer-responsive products and services, and provide healthy competition to general hospitals. This paper explores the merits of this argument, drawing on existing literature and findings from five surgical hospital site visits.
Recent growth in the number of specialty hospitals operating in the U.S. is attributable to a number of factors, including growth in demand stemming from the shift to consumer-directed care, disparities in procedural operating margins, clinical efficiencies, procedural economies of scale, economies (and diseconomies) of scope, organizational learning, and core competencies. The list of factors is notable in that it includes a mix of supply-side effects (physician-initiated process improvement, procedural economies of scope, and diseconomies of scale), demand-side effects (consumer-directed care), and regulatory effects (high variance in Medicare procedural operating margins and absence of CON in some states). It is difficult to determine empirically the relative weights of each of these factors. Non-zero procedural profit margins and the absence of anti-competitive CON laws seem like minimum prerequisites for any market entry. Thus, it is likely that market supply and demand factors play more important a role than is generally acknowledged.
- Economic and Policy Analysis of Specialty Hospitals.
Hospital specialization has become a controversial topic in recent years, culminating in a moratorium issued in 2003 by Congress directing the Centers for Medicare and Medicaid Services to cease payments to new physician-owned specialty hospitals for those Medicare and Medicaid patients referred by physicians with a financial interest in the facility. The moratorium was in part a response to concern among incumbent general hospitals that specialized facilities harm the community by undermining the ability of general hospitals to internally cross-subsidize unprofitable services. This project focuses on one important economic question which continually arose during these debates: does the presence of specialty hospitals in a market reduce general hospitals’ operating margins?
We estimate longitudinal panel regression models for the seven-year time period 1997 to 2003. The first set of models assumes exogenous entry; that is, the establishment of a new specialty hospital is assumed to be uncorrelated with the profit margins of extant general hospitals in the same market. We model exogenous entry with random hospital effects and fixed hospital effects. The second set of models assumes endogenous entry; that is, the establishment of a new specialty hospital is assumed to be correlated with the profit margins of extant general hospitals in the same market.
The results were somewhat surprising. In all models, the presence of one or more specialty hospitals in the market was associated with higher general hospital profit margins. Our findings raise questions about the contention that specialty hospitals harm the ability of general hospitals to provide indigent care.
- Regional Economic Impact of Health Care Cost Inflation.
We analyzed results from a recent survey of Iowa residents concerning the effects on their family budgets of recent increases in health insurance costs. The results are discussed in the context of a simple model of household resource allocation and the recent literature on the various effects that are reported.
The results are summarized as follows: (1) Individuals view inflation in health costs as a serious problem that broadly impacts their lives; (2) High rates of inflation in health costs are likely to have an impact on the regional economy, although the expected negative effects of price inflation and net wage reductions are most likely offset by gains to the regional economy from growth in the health sector; (3) The demand for health is downward sloping, which implies that higher prices lead to less consumption, and beyond some threshold less consumption is likely to have negative effects on health; and (4) The secondary effects of inflation in health care costs are less employment mobility, dampening of entrepreneurial incentives, and stress.
Critical to these findings is the question of where the thresholds lie. For example, the net economic effects of migration of economic activity from the non-health sector to the health sector of the economy may be offsetting in the short run but not in the long run as small sub-regional economies (such as rural areas) experience net losses in economic activity. Similarly, the effects of reductions in health care consumption are likely to be greater for sicker, low-income populations, where the marginal health effects of small reductions in health care consumption may be large.
- Geographic Market Definitions and Hospital Choice in Rural Markets.
This project used hospital discharge data to delineate markets for acute care hospitals in a rural state. The goal of the project was to assess the extent to which hospitals in certain markets competed with each other. The project also reviewed and analyzed the literature on hospital choice.
- Economic Analysis of Health Plan-Physician Integration.
This project examined the economic tradeoffs associated with health plan-physician integration. There are relatively few examples of fully-integrated health plans and physician organizations (e.g., Kaiser Permanente). Plan-physician integration must take into account incentive attenuation, asset pricing, physician capital financing, physician process improvement, and physician payment mechanisms.