Strategic interaction among hospitals and nursing facilities: the efficiency effects of payment systems and vertical integration

Vertical integration in healthcare: What does literature say about improvements on quality, access, efficiency, and costs containment?

INTRODUCTION

Vertical integration models involve integrating services from different levels of care (e.g., primary care, acute care, post-acute care). Therefore, one of their main objectives is to increase continuity of care, potentially improving outcomes like efficiency, quality, and access or even enabling cost containment.

OBJECTIVES

This study conducts a literature review and aims at contributing to the contentious discussion regarding the effects of vertical integration reforms in terms of efficiency, costs containment, quality, and access.

METHODS

We performed a systematic search of the literature published until February 2020. The articles respecting the conceptual framework were included in an exhaustive analysis to study the impact of vertical integration on costs, prices of care, efficiency, quality, and access.

RESULTS

A sample of 64 papers resulted from the screening process. The impact of vertical integration on costs and prices of care appears to be negative. Decreases in technical efficiency upon vertical integration are practically out of the question. Nevertheless, there is no substantial inclination to visualise a positive influence. The same happens with the quality of care. Regarding access, the lack of available articles on this outcome limits conjectures.

CONCLUSIONS

In summary, it is not clear yet whether vertically integrated healthcare providers positively impact the overall delivery care system. Nevertheless, the recent growing trend in the number of studies suggests a promising future on the analysis of this topic.

Profit distribution and managers' behaviour in vertical integrated medical delivery systems - an experimental economics study

Background

The vertical integration of medical delivery systems (VIMDSs) is a reform direction both in China and worldwide. We conducted a controlled economic experiment to explore decision-making by managers of medical institutions with respect to profits and what influences the distribution mechanism in VIMDSs.

Methods

Students and hospital staff were recruited to make choices regarding the role of directors of institutions. z-Tree software was used to design the experimental program. Ninety-six subjects participated in the experiment. We gathered 479 valid contracts.

Results

Of the subjects, 66.39% chose flexible contracts. The median of the bidding distribution rate to community health service centres of all auctions was 18.50%. The final distribution rate was approximately 3 percentage points higher than the bidding distribution rate. The median effort level was 9.00. There was a significant correlation between the improvement rate and the choice of effort level (P<0.05) in flexible contracts.

Conclusions

Hospital managers have a preference for flexible contracts because of uncertainty in the medical system. A community health service centre director may behave perfunctorily by engaging in shading in the integration. Flexible contracts and sharing rates beyond the participants’ expectations motivate managers to engage in more cooperative behaviours.

Vertical integration and optimal reimbursement policy

Health care providers may vertically integrate not only to facilitate coordination of care, but also for strategic reasons that may not be in patients' best interests. Optimal Medicare reimbursement policy depends upon the extent to which each of these explanations is correct. To investigate, we compare the consequences of the 1997 adoption of prospective payment for skilled nursing facilities (SNF PPS) in geographic areas with high versus low levels of hospital/SNF integration. We find that SNF PPS decreased spending more in high integration areas, with no measurable consequences for patient health outcomes. Our findings suggest that integrated providers should face higher-powered reimbursement incentives, i.e., less cost-sharing. More generally, we conclude that purchasers of health services (and other services subject to agency problems) should consider the organizational form of their suppliers when choosing a reimbursement mechanism.

Detecting Medicare abuse

This paper identifies which types of patients and hospitals have abusive Medicare billings that are responsive to law enforcement. For a 20% random sample of elderly Medicare beneficiaries hospitalized from 1994 to 1998 with one or more of six illnesses that are prone to abuse, we obtain longitudinal claims data linked with social security death records, hospital characteristics, and state/year-level anti-fraud enforcement efforts. We show that increased enforcement leads certain types of types of patients and hospitals to have lower billings, without adverse consequences for patients' health outcomes.

The effect of prospective payment on rehabilitative care

OBJECTIVES

To estimate the difference between cost and prospective payment system (PPS) reimbursements for rehabilitation care and to simulate potential consequences of cost-reducing strategies.

DESIGN

A retrospective study to estimate costs and functional status at discharge from care.

SETTING

An academic, urban, rehabilitation hospital.

PARTICIPANTS

Stroke patients on their first admission to a rehabilitation hospital between 1994 and 1998.

INTERVENTIONS

Not applicable.

MAIN OUTCOME MEASURES

Cost was estimated from billing databases. Function was measured using the motor and cognitive components of the FIM instrument.

RESULTS

PPS reimbursements were 10,825 dollars (37%) lower than costs. No matter how much therapy was reduced, the costs were still greater than the mean PPS reimbursement. A reduction in length of stay by 9.6 days was required to bring costs in line with the PPS reimbursement, reducing discharge cognitive function by 1.1 points (P <.01). Use of group therapy brought costs close to PPS reimbursement amount and improved discharge cognitive function by 0.5 points (P <.10).

CONCLUSIONS

Our study shows the large difference between costs and expected PPS reimbursements that would have been observed before the PPS. Institutions have many options that reduce costs, with little effect on function at discharge. Future studies should determine the impact of evolving reimbursement rules on facilities financial status, and on patient outcomes.