Modifying Managed Competition to Address Cost and Quality

Prologue: California has long been regarded as a proving ground for managed competition, the model of health care delivery developed and put forward by Alain Enthoven and Richard Kronick and coopted by the Clinton administration's health care task force. The managed competition model, although complex, boils down to health plans' competing on the basis of cost and quality, with large entities (such as employers or governments) acting as sponsors to ensure fair competition among health plans and fair choice for enrollees. In the view of Hal Luft, a longtime analyst of health care competition and quality, “creative coordination of public and private efforts is necessary to address key threats to a managed competition strategy.” These threats include biased selection and inadequate attention to quality of care. Luft compares the development of quality assessment tools with the process of rating automobile safety and consumer satisfaction. Annual surveys by J.D. Power and Associates track consumers perceptions of auto performance and dependability and of dealers’ responsiveness. These data have some limitations but are supplemented by “crash tests” conducted by the National Highway Traffic Safety Administration and studies performed by the Insurance Institute for Highway Safety. The private/public mix of consumer satisfaction and performance data provide a more complete picture of auto safety than either could provide alone. A similar mix of data is feasible for health care, combining measures such as the Health Plan Employer Data and Information Set (HEDIS) —the increasingly popular “report card” for health plans—with outcome measures developed for specific conditions. Luft is Caldwell B. Esselstyn Professor of Health Policy and Health Economics at the University of California, San Francisco, Institute for Health Policy Studies, and is the institute's acting director. He holds a doctorate in economics from Harvard University. Abstract: California's health care marketplace is undergoing rapid transformation—from one characterized by aggressive but unregulated competition to one that approximates managed competition. The Pacific Business Group on Health purchases health insurance for large employers; the California Public Employees Retirement System acts as a purchasing pool for both state workers and smaller public employers; and The Health Insurance Plan of California is a pool for small employers. Each focuses on price-conscious competition among health maintenance organizations. These large purchasing cooperatives also are addressing biased selection among the health plans they offer. Initially focused on simple demographic adjustments, risk adjustment now also entails adjustment for high-risk cases, such as acquired immunodeficiency syndrome (AIDS) and liver transplants. These purchasers also devote more detailed attention to the quality and process of care.