Plan–Provider Integration, Premiums, and Quality in the Medicare Advantage Market

Abstract

Objective. To investigate how integration between Medicare Advantage plans and health care providers is related to plan premiums and quality ratings. Data Source. We used public data from the Centers for Medicare and Medicaid Services (CMS) and the Area Resource File and private data from one large insurer. Premiums and quality ratings are from 2009 CMS administrative files and some control variables are historical. Study Design. We estimated ordinary least-squares models for premiums and plan quality ratings, with state fixed effects and firm random effects. The key independent variable was an indicator of plan-provider integration. Data Collection. With the exception of Medigap premium data, all data were publicly available. We ascertained plan-provider integration through examination of plans' websites and governance documents. Principal Findings. We found that integrated plan-providers charge higher premiums, controlling for quality. Such plans also have higher quality ratings. We found no evidence that integration is associated with more generous benefits. Conclusions. Current policy encourages plan-provider integration, although potential effects on health insurance products and markets are uncertain. Policy makers and regulators may want to closely monitor changes in premiums and quality after integration and consider whether quality improvement (if any) justifies premium increases (if they occur). Key Words. Medicare, health economics, industrial organization, health care Increasingly, health care providers are seeking advantages through integration (mergers). Although market power resulting from "horizontal" mergers between hospitals or insurance companies has received considerable attention from the media ( 1996Health Services Research scrutiny. However, such plan-provider or "vertical" integration is justified by organizations on the same cost efficiency and quality improvement grounds as horizontal integration of hospitals or insurers.1 Both types of integration raise concerns about excessive market power and consumer welfare. In this study, we focus on plan-provider integration in the Medicare Advantage (MA) market. This is both convenient and relevant to policy. The data necessary for a study of this kind are publicly available. The same cannot be said of the commercial health insurance market. In addition, integration in the MA market is incentivized by provisions of the 2010 Patient Protection and Affordable Care Act (Public Law 111-148) (hereafter, ACA) and subsequent regulation. Through bonus payments for quality improvement and cost reduction, the ACA encourages the formation of accountable care organizations (ACOs), networks of providers responsible for the care of a defined group of Medicare patients (Frakt and Mayes 2012). ACOs give providers an incentive to consolidate the spectrum of care under one management because bonus payments will be tied to performance on quality measures and a spending target based on the difference between a benchmark and all Medicare spending attributed to bene...

Competition and health plan quality in the Medicare Advantage market

“…In line with prior literature in this area, the premium analyses show that plans that tend to operate in more concentrated MA markets are associated with higher premiums as compared to those that tend to operate in competitive MA markets. However, the impact of insurer market concentration on premiums may be modified by MA plan quality.…”

“…In line with prior literature in this area, 16 modify benefit packages more frequently than contract mergers occur. However, enrollment-weighted contract-level quality ratings data obscure any differences in quality at the individual plan level, making it difficult to know whether a high-quality rating reflects high performance across all plans within a contract, or whether there is variable performance across plans.…”

“…Few studies have examined the relationship between insurer market concentration and health plan quality, and fewer still assess this relationship in the context of the MA program. Most relevant to this study, a paper by Frakt, Pizer, and Feldman examines the relationship between vertical MA plan‐provider integration, premiums, and plan quality in 2009 . Their work suggests that a positive relationship exists between plan quality and premiums, with their findings indicating that one additional quality star was associated with $9 higher premiums among MA plans.…”

Quality of provider-offered Medicare Advantage plans

“…In a 2013 study, Frakt and colleagues found that provider-offered contracts had higher CMS star ratings than other contracts, and these provider-offered contracts also had higher premiums, even when controlling for quality 3. Similarly, in 2017 Johnson et al found that provider-offered MA contracts have higher overall CMS star ratings than others, and also significantly outperform other contracts in domain-level star ratings 4.…”

The End of Hospital Cost Shifting and the Quest for Hospital Productivity

“…Early evidence is encouraging that ACOs can improve quality without increasing costs to Medicare (Gold 2013). However, the implications of ACOs and the consolidation they encourage on private prices have not yet been directly assessed (Frakt, Pizer, and Feldman 2013).…”