Reimbursement Assessment
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Elizabeth Star

Is healthcare competition wise for providers, payors or consumers?

Dr. Michael Morrisey, healthcare economist from the University of Alabama Birmingham, says that despite the competition between hospitals, be they profit or non-profit, is beneficial to the consumers.

"In the new world of care, competition and service duplication is great because it means hospitals can and are willing to lower prices to get marginal volume," said Morrisey.

However, Dr. Morrisey does concur with other healthcare specialists who worry about a decline in the quality of care through an excess of certain services.  In the book, Cost Shifting in Healthcare, Morrisey's cites various market studies done by he and other healthcare economists on hospital competition.

The study conducted by fellow health care economist is Glenn Meinick and Jack Zwanziger was presented in their article "Hospital Behavior under Competition and Cost Containment Policies" for the Journal of the American Medical Association found that in California, birthplace of Blue Cross and the HMO movement, competitive prices were driving forces behind the PPO search for the lowest capitable rates.

In 1983, the state of California allowed insurers to selectively contract with care providers and the state Medicaid program to contract with hospitals which were only willing to provide inpatient services through a competitive bidding processes.

Once the state's selective contracting legislation was enacted, hospitals in the more competitive markets had lower rates of cost increase while hospitals in the less competitive markets had higher rates of cost increases.

Prior to this legislation, hospitals in highly competitive markets had higher rates of cost increases than hospitals in less competitive markets.

The study further suggested that PPOs in more competitive markets were able to negotiate lower prices if competition existed and a PPO in question had a large share of the hospital's business.

While directing all their patients to one hospital might secure a PPO the lowest price around, Morrisey warned against that strategy since such an exclusive agreement could have the PPO stranded if the chosen hospital decided to raise prices.

Referencing the Melnick and Zwanziger study, Morrisey indicates this is why, in California, PPOs like to negotiate for lower prices with numerous hospitals.

Capitation, which is a method for paying a fixed amount for health services per individual or employee, has yet to become a force in shaping pricing trends on a local or regional basis around the Mountain Empire.

A fact Susan Charkin, executive director of the Monterey, California -based Healthcents consulting firm, says residents of Appalachia feel fortunate about. "I would advise any market to take a good look at California's trends in capitation," she said.

As a managed care consulting professional, Charkin said that per the continuing trend of cost saving techniques, ancillary services such as home care and emergency services are also becoming subject to fixed capitation rates from MCO's.

These ancillary health services are joining the ranks of community clinics, hospitals and physicians practices that have been purchased by both for-profit and non-profit healthcare entities in the dash for consolidation and networking.

"If you are a small local contractor group, you should make a point to contract with the largest hospitals or health firms in your area", said Charkin.

"Otherwise you may find yourself squeezed out of the local market."

Because projected figures put the nation's healthcare cost at almost 15% of the national GOP by 1999, who pays for healthcare, and how they do so, is the $64,000 question.

How such an unmanageable system called "managed care" will work be it a competitive, or non-competitive market, is open to debate.


Healthcents is a full-service consulting group that specializes in provider contracting and reimbursement analysis. Susan Charkin can be reached at Healthcents, (800) 497-4970; fax (831) 455-2695; email: charkin@healthcents.com