Session: What Influences Hospital Quality?
Room: Hollister 306
Time: Mon 16:45-18:15

Presenter: Troy Quast (Sam Houston State University. Economics & International Business)

Discussant: Karoline MortensenUniversity of Maryland

Abstract

Health Maintenance Organizations (HMOs) play a pivotal role in the U.S. health care system, yet many Americans feel that HMOs often place their financial performance ahead of the welfare of their members. One area of concern is how HMOs respond to changes in their financial performance. Namely, do they alter the quality of care that they provide in response to changes in their financial performance? For instance, during periods of poor profits, do HMOs restrict expenditures, such as enrollee outreach and physician training, that improve the quality of care that enrollees receive? Likewise, do higher profits allow HMOs to invest in measures that improve quality?

Surprisingly, there has been scant research into whether the profits earned by MCOs have an effect on the quality of care that they provide. Born and Simon (2001) analyze roughly 200 commercial MCOs in 1997. They find that higher MCO profits are associated with higher quality of care in the following year. Scanlon, et al (2005) employ a data set of over 300 commercial MCOs in 1997 to analyze the effects of competition on MCO quality of care. In unreported results, they include the same financial measures as employed by Born and Simon (2001). They find that including the financial measures does not alter the effects of ownership status on quality of care.

This paper combines two unique data sources to address this issue. The Texas Department of Insurance publishes detailed annual financial (and non-financial) data for each HMO in each geographic area in which they operate. Additionally, the Texas Office of Public Insurance Counsel publishes annual quality data for each HMO in each geographic area. Specifically, the reports contain HEDIS scores for over thirty measures. Panel data regression analysis is employed that utilizes year and area fixed effects to estimate the effects of changes in profits on quality received.

This paper adds to the existing literature in a number of significant dimensions. First, the use of panel data allows for an analysis of the effects of changes in profits, holding time-invariant factors constant. Earlier research on this topic is limited mostly to cross-sectional analyses, which may be subject to issues of simultaneity. Second, the data are disaggregated to the HMO-city level. As the operating environment may differ across the various regions within an HMO’s service area, data at the HMO-city level can capture these potential differences in a way that studies performed at the HMO level cannot.

The preliminary results suggest that quality and profits are positively correlated for some HEDIS measures. For certain preventive procedures, such as cancer screening and well-child visits, increases (decreases) in profits are associated with increases (decreases) in the HEDIS measure. While preliminary, the results indicate that financial performance and quality of care are not divorced for some procedures. While further investigation is warranted, the findings are consistent with a scenario in which regulations may be needed to ensure that the care received by HMO enrollees is not affected by financial conditions.

Key Terms

health maintenance organizations; profits; quality

Authors:

Troy Quast (Sam Houston State University. Economics & International Business)