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Is managed care restraining the adoption of technology by hospitals?

  • Mas, Nuria

    ()

    (IESE Business School)

  • Seinfeld, Janice

    (Universidad de Perú)

As health care costs increase, cost-control mechanisms become more widespread and it is crucial to understand their implications for the health care market. This paper examines the effect that managed care activity (based on the aim to control health care expenditure) has on the adoption of technologies by hospitals. Managed care may affect hospitals' decision to take on new technologies if it alters local market structure and physician incentives. We use a hazard rate model to investigate whether higher levels of managed care market share are associated with a decrease in medical technology adoption during the period 1982-1995. We analyze annual data on 5,390 US hospitals regarding the adoption of 13 different technologies. This is the first time that such a broad study has been implemented. After adjusting for hospital characteristics, demographics and local market characteristics, we find that managed care has a negative effect on hospitals' technology acquisition for each of the thirteen medical technologies in our study, and this effect is strongest for technologies diffusing in the 1990s, when the managed care sector was at its largest. If managed care enrollment had remained at its 1984 level, there would be 5.3, 7.3 and 4.1 percent more hospitals with diagnostic radiology, radiation therapy and cardiac technologies, respectively. We also take into account that cost-benefit analysis is one of the main dimensions considered by hospitals when deciding about the adoption of new technologies. In order to determine whether managed care affects technologies differently if they have a different cost-benefit ratio, we created a unique data set with information on the cost-benefit for each of the thirteen technologies. We find that managed care enrollment has a considerably more negative effect on the adoption of technologies with higher cost-benefit ratios. The results suggest there may be long-term reductions in medical cost growth resulting from increased managed care enrollment.

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Paper provided by IESE Business School in its series IESE Research Papers with number D/554.

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Length: 44 pages
Date of creation: 10 May 2004
Date of revision:
Handle: RePEc:ebg:iesewp:d-0554
Contact details of provider: Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
Web page: http://www.iese.edu/

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  1. James R. Baumgardner, 1991. "The Interaction between Forms of Insurance Contract and Types of Technical Change in Medical Care," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 36-53, Spring.
  2. Laurence Baker & Joanne Spetz, 1999. "Managed Care and Medical Technology Growth," NBER Working Papers 6894, National Bureau of Economic Research, Inc.
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  13. Gilbert, Richard J., 1987. "Investment and Coordination in Oligopolistic Industries," Department of Economics, Working Paper Series qt51b0f7sq, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  14. Robinson, James C. & Luft, Harold S., 1985. "The impact of hospital market structure on patient volume, average length of stay, and the cost of care," Journal of Health Economics, Elsevier, vol. 4(4), pages 333-356, December.
  15. David M. Cutler & Mark McClellan, 1996. "The Determinants of Technological Change in Heart Attack Treatment," NBER Working Papers 5751, National Bureau of Economic Research, Inc.
  16. Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
  17. David M. Cutler & Louise Sheiner, 1997. "Managed Care and the Growth of Medical Expenditures," NBER Working Papers 6140, National Bureau of Economic Research, Inc.
  18. Cutler David M. & Sheiner Louise, 1998. "Managed Care and the Growth of Medical Expenditures," Forum for Health Economics & Policy, De Gruyter, vol. 1(1), pages 1-41, January.
  19. Baker, Laurence C., 1997. "The effect of HMOs on fee-for-service health care expenditures: Evidence from Medicare," Journal of Health Economics, Elsevier, vol. 16(4), pages 453-481, August.
  20. Hoerger, Thomas J., 1991. "'Profit' variability in for-profit and not-for-profit hospitals," Journal of Health Economics, Elsevier, vol. 10(3), pages 259-289, October.
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