Academy Health ARM Academy Health ARM 20082008

Is Regionalization or Is Regionalization or Competition Better for Competition Better for

Patient Welfare?Patient Welfare?Vivian Ho, PhDVivian Ho, PhD

James A. Baker III Institute for Public Policy & Dept. of Economics, James A. Baker III Institute for Public Policy & Dept. of Economics, Rice UniversityRice University

Dept. of Medicine, Baylor College of MedicineDept. of Medicine, Baylor College of Medicine

Marah Short, MAMarah Short, MAJames A. Baker III Institute for Public Policy, Rice UniversityJames A. Baker III Institute for Public Policy, Rice University

June 10, 2008June 10, 2008

FundingFunding

National Institute of Health: National Institute of Health: National Cancer Institute grant National Cancer Institute grant entitled Regionalizing Cancer entitled Regionalizing Cancer Surgery (1 R21 CA118452-01A1)Surgery (1 R21 CA118452-01A1)

Research ObjectivesResearch Objectives

To predict the changes in consumer To predict the changes in consumer surplus resulting from regionalizing surplus resulting from regionalizing cancer surgery by referring patients cancer surgery by referring patients to high volume hospitalsto high volume hospitals

Empirical FrameworkEmpirical FrameworkRegionalization

Hospital Procedure Volume

Mkt. Concentration

MortalityCostPrice

Patient Welfare

Study DesignStudy Design

Estimate effect of market concentration on Estimate effect of market concentration on mortality, cost, & pricemortality, cost, & price

Estimate effect of procedure volume on Estimate effect of procedure volume on mortality & costsmortality & costs

Use volume-mortality estimates to assign a Use volume-mortality estimates to assign a value to the lives gained resulting from value to the lives gained resulting from regionalizationregionalization

Use concentration effects to predict Use concentration effects to predict regionalization costsregionalization costs

Use benefits & costs to estimate consumer Use benefits & costs to estimate consumer surplussurplus

DataData

Patients who underwent surgical Patients who underwent surgical resection for pancreatic or colon resection for pancreatic or colon cancer between 2001 & 2005cancer between 2001 & 2005 Hospital discharge abstracts in Florida, Hospital discharge abstracts in Florida,

New Jersey, New York & CaliforniaNew Jersey, New York & California Medstat MarketScan insurance claimsMedstat MarketScan insurance claims AHA annual surveysAHA annual surveys Medicare cost reportsMedicare cost reports

Dependent VariablesDependent Variables

Inpatient MortalityInpatient Mortality CostCost

Charges multiplied by CCRsCharges multiplied by CCRs PricePrice

Payment to hospital for entire Payment to hospital for entire admissionadmission

Patient co-pay & insurance co. paymentPatient co-pay & insurance co. payment

Explanatory Variables: Explanatory Variables: Mortality, Cost, & Price Mortality, Cost, & Price

EquationsEquations Herfindahl IndexHerfindahl Index Hospital Hospital

CharacteristicsCharacteristics Annual procedure Annual procedure

volumevolume OwnershipOwnership TeachingTeaching BedsizeBedsize

Hospital-level FEHospital-level FE Year Year

Patient Patient CharacteristicsCharacteristics Age, Gender, RaceAge, Gender, Race Urgent/EmergentUrgent/Emergent Elixhauser Elixhauser

comorbidity indexcomorbidity index Cancer stageCancer stage Procedure specificProcedure specific LOS (mortality eqn. LOS (mortality eqn.

only)only)

Effect of Market Effect of Market Concentration & Procedure Concentration & Procedure

Volume on MortalityVolume on MortalityPancreaticoduodenePancreaticoduodene

ctomyctomyColectomyColectomy

HerfindahlHerfindahl -2.345-2.345

(0.425)(0.425)4.9544.954******

(0.002)(0.002)

VolumeVolume -0.042-0.042******

(0.000)(0.000)-0.011-0.011******

(0.000)(0.000)

P-values are in parentheses.P-values are in parentheses.

* Statistically significant at 10% level; ** 5% level; *** 1% level. * Statistically significant at 10% level; ** 5% level; *** 1% level.

Effect of Market Effect of Market Concentration & Procedure Concentration & Procedure

Volume on CostsVolume on CostsPancreaticoduodenePancreaticoduodene

ctomyctomyColectomyColectomy

HerfindahlHerfindahl 5.0895.089

(0.370)(0.370)-1.218-1.218

(0.718)(0.718)

VolumeVolume -0.050-0.050**

(0.085)(0.085)-0.001-0.001

(0.895)(0.895)

P-values are in parentheses.P-values are in parentheses.

* Statistically significant at 10% level; ** 5% level; *** 1% level. * Statistically significant at 10% level; ** 5% level; *** 1% level.

Effect of Market Effect of Market Concentration on Concentration on

Log(Price)Log(Price)PancreaticoduodenePancreaticoduodene

ctomyctomyColectomyColectomy

HerfindahlHerfindahl 4.5234.523

(0.342)(0.342)0.7630.763****

(0.041)(0.041)

P-values are in parentheses.P-values are in parentheses.

* Statistically significant at 10% level; ** 5% level; *** 1% level. * Statistically significant at 10% level; ** 5% level; *** 1% level.

Principal ResultsPrincipal ResultsPancreaticoduodenectPancreaticoduodenect

omyomyColectomyColectomy

Higher Higher mkt. mkt. concentraconcentrationtion

MortalityMortality

PricePrice

Higher Higher procedure procedure volumevolume

MortalityMortality

CostsCosts

MortalityMortality

Principal ResultsPrincipal Results

Higher procedure volume is Higher procedure volume is associated with lower mortality for associated with lower mortality for both procedures and lower costs for both procedures and lower costs for pancreaticoduodenectomy.pancreaticoduodenectomy.

Higher concentration is associated Higher concentration is associated with higher mortality and price for with higher mortality and price for colectomy.colectomy.

Next StepsNext Steps

Use volume-mortality estimates to Use volume-mortality estimates to assign a value to the lives gained assign a value to the lives gained resulting from regionalizationresulting from regionalization

Use concentration effects to predict Use concentration effects to predict regionalization costsregionalization costs

Use benefits & costs to estimate Use benefits & costs to estimate consumer surplusconsumer surplus

Policy ImplicationsPolicy Implications

Recommendations to save lives by Recommendations to save lives by concentrating surgery at high-concentrating surgery at high-volume hospital should be tempered volume hospital should be tempered by consumer surplus losses resulting by consumer surplus losses resulting from reductions in hospital market from reductions in hospital market competition. competition.