In the 1970s, managed care was widely embraced in the US and lauded as the perfect remedy for the problems of an expensive and complex health system. Some 30 years later, the health care field is still digesting managed care and deciding whether or not it works. Some key questions remain, and an important one relates to technology: Has managed care inhibited hospitals from adopting new equipment and procedures?
The groundbreaking paper, "Is Managed Care Restraining the Adoption of Technology by Hospitals?" by Núria Mas, a research associate at IESE, and Janice Seinfeld of NBER, Universidad de Perú, examines the relationship between managed care and hospitals' acquisition of technology. The issue is a tricky one. On the one hand, if managed care hinders hospitals from obtaining new technologies, health care costs could be reduced in the long term. on the other hand, this could hinder technological innovation and profoundly impact the quality of patient care.
Managed care originated as a way to control exorbitant health care spending, which grew at an annual rate of 12 percent between the 1960s and the early 1990s. However, since 1992, the growth of medical costs has slowed down significantly, to an annual average rate of 5 percent. This decline has sparked an ongoing debate about what effect the shift toward managed care has had on expenditures. It is still unknown whether managed care generated one-time savings or whether it will result in long-term reductions.
A hospital's decision to purchase new technology equipment depends on several factors, including financial pressure from providers, incentives and an individual cost-benefit analysis. All of these factors must be considered in the context of managed care, which works by offering consumers less expensive insurance but with a limited choice. Within the network, patients are required to see a primary care physician before being referred to a specialist. Thus, managed care might influence a doctors' propensity to assign patients to a particular treatment, and it might limit patients? access to expensive medical procedures.
To explore the intricacies of the relationship between technology and managed care, Mas and Seinfeld analyzed data on 5,390 U.S. hospitals from 1982 to 1995. They examined whether or not they have adopted 13 specific technologies in the fields of radiology, radiation and cardiology. Many of the technologies were diffused during the 1980s, when managed care was scarce, and others were distributed in the 1990s, when managed care was an important health care phenomenon. This is the first time that such a broad study has been conducted.
What Mas and Seinfeld found is that managed care has a significant negative effect on hospitals' technology adoption. Hospitals were especially reluctant to adopt new technologies in the 1990s, when managed care was at its peak. If enrollment in the program had remained at its 1984 level, there would have been 5.3 percent more hospitals with diagnostic radiology, 7.3 percent more hospitals with radiation therapy and 4.1 percent more hospitals with cardiac technologies.
Since hospitals often rely on a cost-benefit analysis when deciding whether or not to adopt a technology, the authors created a unique data set with information on the cost-benefit for each of the 13 technologies. "We find that managed care enrollment has a considerably more negative effect on the adoption of technologies with higher cost-benefit ratios," they write.
Mas and Seinfeld also examine other potential forces driving technology adoption. They find that the insurance environment, regulation and market structure are other influential factors.
So, managed care might lead to long-term reductions in the growth of medical costs. By limiting the availability of new and expensive technologies, managed care might, indeed, save money. Yet, the effects of managed care on patient care are still unknown. on the downside, patients may not have access to the latest equipment and procedures. on the upside, managed care might merely eliminate duplicate technologies and make sure that each machine and procedure is used properly and efficiently.
As health care costs continue to rise, cost-control mechanisms will become more widespread. And it is crucial to understand exactly what this means for the health care market.