Hospital Utilization by Fee-for-Service and Medicare Advantage Enrollees Lauren Hersch Nicholas University of Michigan

1. Hospital Utilization by Fee-for-Service and Medicare Advantage EnrolleesLauren Hersch NicholasUniversity of MichiganSeptember 15, 2009

2. Motivation Ongoing policy interest in expanding Medicare benefits while reducing spending Medicare Advantage plans provide a voluntary, managed care alternative to Fee-for-Service Payments to plans now exceed average FFS spending Little is known about quality or cost implications of increasing enrollment in Medicare Advantage plans

3. Research Questions Does managed care affect hospital utilization for Medicare beneficiaries? Quality of outpatient care: Ambulatory Care Sensitive Admissions Access to elective procedures: Referral-Sensitive Admissions Does managed care enrollment affect total Medicare spending?

4. Background Existing quality and utilization literature indicates quality problems in early Medicare managed care plans Yet managed care consistently better at preventive service use Cost spillovers from managed care believed to hold down FFS spending, but higher payments to plans raise total spending Managed care plans historically attract healthier enrollees Findings mostly from 1990s, don�t identify casual effects

5. State Inpatient Database Discharge abstracts from hospitalizations in AZ, FL, NJ, and NY 20% of Medicare beneficiaries and 25% of Medicare Advantage enrollees live in one of these 4 states All in-state hospitalizations from 1990-2005 Include Medicare Advantage and Fee-for-Service beneficiaries ICD-9 diagnostics and procedure codes used to identify ambulatory care sensitive (AHRQ Prevention Quality Indicators) and referral-sensitive admissions Marker hospitalizations, which are not affected by medical care, provide comparison group Medicare enrollment date ? demographic information for all beneficiaries

6. Ambulatory Care Sensitive Admissions Potentially avoided with effective primary care

7. Referral-Sensitive Admissions Technology-intensive procedures, require referral Low rates of procedures may suggest barriers to service use

8. Marker Admissions Hospitalizations which are unrelated to recent medical care, reflect underlying health status, private information influencing insurance choice and utilization

9. Unadjusted Rates of Hospitalization for Medicare Advantage and Fee-for-Service Enrollees

10. Medicare Advantage and Fee-for-Service Enrollees are Demographically Similar

11. What explains differences in hospital utilization? Medicare Advantage plans attract healthier enrollees, otherwise provide the same care as Fee-for-Service Medicare Advantage plans manage care to limit utilization, ? reduce elective procedure use Medicare Advantage plans manage care to preserve beneficiary health, ? reduce potentially preventable admissions

12. Empirical Approach Insurance Type-Country-Year level regressions of rate of hospitalization on Medicare coverage type and demographics County and Year fixed effects Two-stage estimation procedure using ratio of observed to expected marker hospitalizations to control for unobserved health status differences Pairs-Cluster Bootstrap used to calculate standard errors

13. Effect of Managed Care on Rates of Hospitalization (1)

14. Effect of Managed Care on Rates of Hospitalization (2) Managed care significantly reduces potentially preventable hospitalizations Acute reductions primarily from Pneumonia and Urinary Tract Infection ? earlier access to antibiotics? No overall managed care effect for referral-sensitive hospitalizations, but significant reduction in elective joint replacement (3.5 per 1,000 enrollees) and pacemaker insertion (0.9 per 1,000) Positive selection into Medicare Advantage plans accounts for between 25 and 35 percent of risk-adjusted differences

15. Trends in Ambulatory Care Sensitive Admissions in Medicare Advantage and Fee-for-Service

16. Medicare Advantage and Medicare Spending Nationally, 1% increase in Medicare Advantage enrollment increases average Medicare spending between 0.3 and 1.1% Is extra spending on managed care cost-effective way to reduce ACS admissions? Increasing plan payment rates by $600 per enrollee per year would reduce ACS admissions rate by 1 per 1,000

17. Conclusions and Policy Implications Medicare Advantage plans have lower rates of ambulatory care sensitive admissions No overall difference in referral-sensitive admissions Both positive selection and true �managed care effect� explain observed differences in utilization Higher payments to plans concentrate enrollment on healthier enrollees, hospitalizations primarily reduced by low-cost interventions Potential to reduce total spending by improving access to acute care in FFS?