Publicly financed competition in health care delivery

Journal

of Health

Economics

PUBLICLY

8 (1989) 313-338.

FINANCED

North-Holland

COMPETITION DELIVERY

A Canadian

Simulation

IN HEALTH

CARE

Model*

Jacqueline M. MULDOON Trent University, Peterborough, Ont., Canada, K9J 788

Greg L. STODDART McMaster University, Hamilton, Ont., Canada, L&S 325 Canadian Insrirute for Advanced Research, Toronto, Ont.. Canada. MST IX4 Received

December

1988

This paper presents the simulation analysis of a proposal for publicly financed competition in the Canadian health care system. The proposal incorporates cost-conscious consumer choice among alternative delivery modalities within a system of national health insurance. Five model structures for competition are examined using data from a market area in the province of Ontario. The simulation results indicate the potential for competition to have a signilicant impact on health care expenditure over a range of plausible circumstances. The results also suggest that it may not be necessary to go so far as a system of formal competition in order to achieve much of the potential savings associated with alternative delivery modalities.

1. Introduction

The Canadian public health insurance system has succeeded in providing universal access to health services for the population while controlling overall health care expenditures [Barer and Evans (1986)]. Provincial governments have, however, relied on blunt financial instruments such as fee schedule negotiations with medical associations and global budgets for hospitals to ‘manage’ the health care system. Moreover, the focus of *We thank Alan Harrison, Stuart Mestelman, Bill Thoil, Guy Bujold, Douglas Curtis, James Seldon, Jonathan Lomas and colleagues in the Health Polinomics Workshop at McMaster University for comments received during this research. Financial support was provided by the National Health Research and Development Program, Health and Welfare Canada, through National Health Doctoral Fellowship No. 6606-2181-47 to the first author. An earlier version of the paper containing preliminary results was presented at the Third Canadian Conference on Health Economics, Winnipeg, Manitoba, May 1986 and the Fourth World Congress of Social Economics, Toronto, Ontario, August 1986. Ol67-6296/89/$3.50

0

1989, Elsevier Science Publishers

B.V. (North-Holland)

314

J.M.

Muldoon and G.L. Stoddart, Publicly jinanced competition

provincial policies has been expenditure control rather than efIiciency improvement. The Canadian system relies on health care providers to make efficient use of resources, but offers few incentives for efficiency. As a consequence, there is concern about the capability of the system, as it is currently organized, to achieve both efficiency and long-run expenditure contro1.i In Canada, as elsewhere, increased use of competition and market forces has been suggested as one possible policy direction for improving health care delivery. As Enthoven (1988) has pointed out, however, ‘competition’ can have several meanings and can produce an array of outcomes depending on the specific institutional arrangements under which it operates. The concept of competition in this paper follows the definition used by Enthoven (1978,198O) and McClure (1982) which requires ‘cost-conscious consumer choice and price competition among alternative health care financing and delivery plans’ within ‘a carefully designed and managed system of universal health insurance’ [Enthoven (1988, p. 306)]. Although little analytic work on systematic market reform has been done for Canada, a proposal for introducing competition into Canadian health care delivery was advanced by Stoddart and Seldon (1984). Their proposal, called ‘publicly financed competition’, satisfies the Enthoven criteria. They suggested that alternative primary care delivery modalities be established within the public health insurance system to engage in price and/or benefit competition with the traditional fee-for-service modality.* The presumption is that alternative delivery modalities have the potential to lower the per capita cost of health care and, in combination with consumer choice, to change the behaviour of fee-for-service providers. If so, then a system of publicly financed competition in which consumers selected their primary care modalities on the basis of, inter alia, an annual enrollment fee, might improve the efficiency of the health care system and contribute to expenditure control. Discussion of publicly financed competition in Canada has identified ‘See, for example, Evans (1981,1984), Stoddart (1984). Weller and Manga (1983). and Wolfson and Tuohy (1980). A common theme of these and other commentators is the ongoing and fundamental conflict between provincial governments and the medical profession over health care expenditures and incomes. For a comprehensive review of the Canadian experience with universal, public health insurance see the collection of papers in Evans and Stoddart (1986). ‘The term ‘modality’ is frequently used in Canada to refer to the combination of financing and organization within a health care delivery model. The Stoddart and Seldon proposal specified three modalities, based on the reimbursement methods of fee-for-service, capitation and salary. The first two allow for privately owned and operated physician practices, both solo and group. The third consists of publicly owned and operated community health centres. All reimbursements would be made directly to practices by provincial health insurance plans, as they are currently. Although delivery modalities other than fee-for-service are not unknown in Canada, to date their use has been very limited. For a review of health care organization in Canada and alternative modalities see Hastings and Vayda (1986) and Contandriopoulos et al. (1987).

J.M.

Muidoon

and G.L.

Stoddart,

Publicly

financed

competition

315

several questions for investigation, including impact on expenditures, effects on quality and equity, and legislative and operational feasibility [Horne (1984), Tholl (1987), Bujold (1987) and Roth (1987)]. This paper addresses the first of these issues. It presents the structure and results of a simulation model which investigates the magnitude of potential savings (or dissavings) that might result from the introduction of publicly financed competition between two modalities, fee-for-service and capitation, in a representative market area in the province of Ontario. The results of the simulation analysis indicate that the existence of a capitation modality serving individuals who would otherwise be cared for by fee-for-service physicians can, by itself, lead to significant savings for a community. The introduction of formal competition between the two modalities through publicly-administered enrollment charges to consumers increases savings, but its marginal contribution to savings is smaller than that arising from the existence of the capitation sector. This finding has important policy implications in the Canadian context. Savings are further enhanced if fee-forservice physicians react to competitive pressure by reducing their utilization of hospitals and if the government adopts a different method of determining capitation rates than the one it has historically used. (In the latter case, failure to do so can lead to significant dissavings.) The estimates of savings are sensitive, however, to the assumptions made regarding the initial parameter values of certain variables. These will require closer examination prior to the formulation of policy. The assumptions and structure of the simulation model are described in the next section. Data sources used in the analysis are discussed in section 3. Estimates of potential savings attributable to competition are presented in section 4 and discussed in section 5. The implications of this research for the development of alternative (to fee-for-service) modalities and for publicly financed competition in Canada are discussed in the concluding section. 2. Simulation

model

The model is a micro-simulation of the effects of competition between two modalities, capitation and fee-for-service, on health care expenditures in a single Ontario community. A flow diagram of the model is provided in fig. 1. The arrows in the diagram indicate the direction of the causal relationships. Fig. 1 indicates the general structure of the model but not the form of specific relationships; the simulation equations are provided in the appendix. The model used the simulation package DYNAMO [Pugh-Roberts Associates Inc. (1984)-J. The basic dynamics of the model are as follows. The model assumes that competition takes place within a single community of fixed size. Health services can be obtained from either the capitation or fee-for-service moda-

J.M.

316

Muldoon and G.L Stoddart, Publicly financed competition

64 ------1

CONSUMER CHOICE

I

ENROLLMENT CHARGE

F I

I

CAPITATION AMBULATORY COSTS

I I_________--______

____{

CA:;pN

f

I

k-_ -_~~--__I

Fig, 1. Model structure.

I I I I

J.M.

,Cluldoon und G.L. Stoddart, Publicly financed competition

317

lity. The capitation sector consists of one multi-specialty group practice.3 The fee-for-service sector consists of a number of solo practitioners, partnership or groups, all of which are reimbursed on a fee-for-service basis. Ambulatory and hospital services are the outputs in each modality. The model separates hospital and ambulatory utilization for each modality, and calculates modality costs as the product of service utilization and unit costs. For each modality, ambulatory and hospital costs are summed to obtam the total cost of providing care. Average per capita costs for each modality are then calculated. Public health insurance provides access without additional charges to the lower cost modality, determined on the basis of per capita expenditure levels. The difference in average per capita cost between modalities translates into an ‘enrollment charge’.J Consumers who remain with or enroll in the higher cost modality must pay the enrollment charge, to the public health insurance plan.5 The existence of the enrollment charge generates movement of consumers between the modalities. During each enrollment period consumers react to the enrollment charge and the services provided by the suppliers of health care by either changing or remaining with their supplier of primary health services. Movement between the modalities can occur in either direction. When movement occurs a new market share for each modality is calculated and incorporated into the next period of the model. New enrollment numbers combined with utilization and cost data for each modality generate new relative cost differences which are in turn expressed through a change in the enrollment charge. Consumers again react to the charge and the process is repeated, with changes in enrollment and market share of each modality imposing competitive pressure on both modalities. Further explanation of the structure and assumptions of the model is divided into four parts: (1) the institutional environment, (2) the cost structure, (3) the enrollment decision, and (4) the competition models. ‘It should be emphasized that it is the organization as an administrative entity that is retmbursed on the basis of capitation. Physicians within the organization may be reimbursed by this method or in some other way, for example, by salary or through profit-sharing. The implications of difIerent internal organizations of practice ‘firms are not investigated in this paper. 4The enrollment charge for a period is set equal to the full difference in modality per capita costs in the previous period. In practice the enrollment charge could be any positive monotonic function of the cost difference. In fact, the enrollment charge need not be a charge to consumers in the more expensive modality, but could be modelled as a rebate to individuals choosing the lower cost modality. sBecause the purpose of the charge is to signal less costly styles of care, its significance as a revenue source for government is neither central to nor developed in this model. Although the revenues collected from the enrollment charge could be used to offset health care costs, the charge is not instituted with the intention of raising a target proportion of total expenditures. Similarly, the institutional environment assumed in this paper neither requires nor prohibits provincial health insurance premiums, which exist in a few Canadian provinces.

J.H.E.--C

318

J.M.

Muldoon and G.L. Stoddart,

Publicly financed competition

2.1. Institutional environment

With the exception of enrollment and the enrollment charge, the model accepts the existing institutional environment of the Ontario and Canadian health care market. The role of the government in the model is to encourage the efficient provision of care while ensuring adequate insurance coverage and access to care for all citizens through public health insurance for physician and hospital services. Supplemental private insurance for these services, and for enrollment charges, is prohibited. Both modalities offer similar benefit packages which correspond to the range of services that are currently provided under the public universal health insurance plan. The availability of similar benefit packages is not to say, however, that the same services would actually be provided or used to the same extent in each modality.6 Practitioners in a particular modality may decide to restrict or not to provide services considered unnecessary or just marginally beneficial. As a result, different intensities of servicing and different service mixes between modalities can occur.’ The government is responsible for specifying the minimum benefit package, thereby ensuring that each modality provides comprehensive care to its respective population. A minimum benefit package prevents a modality from achieving expenditure reductions by excluding entire categories of services. In general, the provision of types of services beyond the minimum would be optional and as a consequence would be paid for by consumers out-ofpocket. For the purpose of this analysis, optional or additional types of services which might induce benefit competition between the two modalities are ignored. Practices in each modality accept consumers on a first-come, first-served basis. Consumers choose between modalities on a yearly basis during an open enrollment period, by selecting either the capitation group or a fee-forservice physician as their source of primary care. The open enrollment periods are intended to restrict the ability of modalities to discriminate against poor risks. At any time all consumers are assumed to be enrolled in one of the modalities. Furthermore, the average health status of consumers in each modality is assumed to be similar.* 6The term ‘services’ is used, depending on the context, both to distinguish different categories of services such as physician, hospital, dental, laboratory, optometry, etc., and to distinguish specific services within a category, such as well-baby visits, complete exams, partial exams, minor surgery, etc. ‘For example, the mix of hospital versus ambulatory services or the mix of preventive versus curative services may differ between modalities. ‘Without this assumption it is difficult, although not impossible, to compare total utilization and expenditures for different patient populations. Differing health status between two population groups can be accommodated if average utilization and expenditure calculations are healthstatus adjusted. McClure (1984) Thomas and Lichtenstein (1986) and Anderson et a). (1986) discuss methods for the adjustment and problems associated with them.

J.M.

Muidoon

and G.L. Stoddart,

Publicly

financed

competition

319

The quality of care (defined on health outcomes) provided in the two modalities is assumed to be equivalent. This assumption is consistent with evidence in the health services research literature and is essential to ensure that cost differences between the modalities, and any resulting charges to patients, reflect only differences in practice styles.g The model also accepts the existing structure of the Ontario (and Canadian) hospital services sector, including reimbursement of hospitals by provincial agencies through global budgets as part of the publicly financed health care system. Modalities neither own nor operate their own hospitals, and any reductions in the stock of beds that become possible through competition must be (and are assumed to be) accomplished by a government planning/consultation process.”

2.2. Cost structure Hospital utilization is measured by the number of patient days and the unit cost of hospitalization is measured by cost per patient day. Fee-for-service ambulatory costs are measured by total dollar expenditures on ambulatory services in that modality.” In the first period capitation ambulatory costs are measured by total dollar expenditures for ambulatory services in the capitation sector. Thereafter, the per capita ambulatory cost in the capitation sector for each period is equal to the per capita ambulatory cost in the fee-for-service sector for the previous period. This unusual linkage of part of capitation sector costs to previous expenditures in the fee-forservice system is based on the method that the Ontario Ministry of Health has historically used to set capitation rates for the small number of practices in the capitation sector. The impact of uncoupling the capitation rate from

9Cunningham and Williamson (1980) cite a number of examples of evaluations demonstrating that the quality of care in capitation and fee-for-service plans is essentially the same; in many instances it is actually better in the capitation sector. In a controlled study, Ware et al. (1986) found similar results but with one notable exception; a low income group of HMO patients who entered the study in poor health appeared to have worse health outcomes than a corresponding group in the fee-for-service system. Luft (1981), Donabedian (1983) and Hornbrook and Berki (1985) provide further review and discussion on the issue of quality. “‘The inclusion of modality-owned hospitals in the model represents another possible variant of the competition strategy, in which the potential savings may be greater than they are in the environment depicted in this model. However, the amount of institutional change that would be required in Canada is also much greater. “The terms ‘expenditures’ and ‘costs’ are used interchangeably because expenditures in the modalities are costs to the public health insurance plan. The true costs of producing services in the modalities is largely unknown to public reimbursement agencies. Expenditures by a modality are affected both by the production function of the modality and by the behaviour of the modality’s providers and patients in deciding to utilize services.

320

J.M.

fee-for-service below.”

Muldoon

activity

2.3. Enrollment

and G.L. Stoddart,

is explored

Publicly financed

in the

competition

competition

models

specified

decision

The model structure channels the movement of patients between modalities through an enrollment elasticity specified on price alone; however, in both theory and practice consumer decisions may be based on preferences for characteristics of the modality itself. In the simulations reported below, the values employed for the elasticity variable are based on studies in which consumers also exhibited non-price-determined behaviour. The elasticity values should therefore be interpreted as ‘net’ elasticities, which have already taken into account direct consumer preferences for modalities, practice styles, or individual practitioners, all of which might interact with the price effect.13 The model assumes that each new enrollee in a modality generates the average cost of existing enrollees and that capacity adjustments occur instantaneously. The policy significance of the second assumption, and other important assumptions in the model structure described above, are discussed in section 6.0. 2.4. Competition Enthoven

models

(1978,198O) identified

several possible responses by a fee-for-

‘*The percentage of the Ontario population receiving care from physicians reimbursed by methods other than fee-for-service has always been very small. It is currently about 3%. In this environment, capitation reimbursement has not been viewed as a policy instrument for changing practice style and utilization patterns. Rather, it has been, according to the provincial Ministry, an ‘alternative payment mechanism’ available to physicians who preferred not to be paid on a fee-for-service basis and whose practice populations met certain criteria. The main concern of provincial authorities has been to ensure that alternative arrangements do not cost more than would have been spent on a fee-for-service basis. Therefore, capitation rates have been tied directly to fee-for-service expenditure patterns, with occasional minor adjustments. Recent policy decisions in Ontario to encourage the growth of the capitation sector and to use it as a catalyst for change in health care delivery highlight the significance of the competition models presented in section 2.4. “The view of the consumer’s utility function which underlies this approach is that individuals maximize U(X,HC, HCC, HS(HC)) subject to a budget constraint, the constraint that health care must be provided by one of two modalities of health care delivery, and personal health status. In the utility function, X is a composite good, representing all consumer expenditures other than those on health care, HC is health care services, HCC is a vector of characteristics of health care delivery which are important to the consumer (for example, seeing the same physician or 24-hour availability of care), and HS is health status. Generally, dU/ZX>O, I?U/ dHCO, dU/dHS>O, and dHS/dHC >O. Individuals will choose the health care delivery modality which gives them the greatest level of expected utility. With appropriate data, an estimate of the probability that an individual would switch modality on the basis of modality or individual characteristics aside from the relative price of the modality could be derived by means of a qualitative choice model. Although this is an important area for further research on consumer behaviour in competitive health care markets, it is beyond the scope of this initial model.

J.M.

Muldoon

and G.L.

Stoddart,

Table Competition

Model I (No response) Model II (Positive response modality)

by the fee-for-service

Model III (Perverse response modality)

by the fee-for-service

Model IV (Independent

capitation

not active,

competition

321

1 models.*

Fee-for-service response

Linkage of capitation rate to fee-for-service ambulatory cost

X

\

\

\!

\’

W’

X

X

\

X

rate setting)

Model V (Combined independent capitation rate setting and positive response by the feefor-service modalitv) “X denotes

Publicly financed

J

denotes

active.

service sector to increased competition. Here five models are used to illustrate a range of possible competition scenarios (summarized in table 1) and their impact on health care expenditures. All models have the existence of a capitation modality with cost-conscious consumer choice as the basis of the model structure. The different structures of the individual models were selected in order to illustrate the significance of certain components, such as the enrollment elasticity, the hospital utilization rate in the fee-for-service modality, and the method of capitation rate setting. Model I introduces formal competition between the capitation and fee-forservice modalities, based on an enrollment charge, but assumes no reaction by the fee-for-service modality in terms of changes in real servicing patterns. The dotted lines (a) and (b) in fig. 1 are not active. Model II incorporates a ‘positive’ response by the fee-for-service modality which operates through hospital utilization and generates competition for market share between the two modalities [the dotted line (a) in fig. 1 is now active]. In this model the fee-for-service modality recognizes that the difference between its average per capita cost and that of the capitation modality is the direct result of the difference in their hospital utilization rates.r4 Lost market share is a consequence of this difference. The fee-for-service modality reaction takes the form of a reduction in 14A common finding in comparisons of health service utilization under capitation and fee-forservice reimbursement in both the United States and Canada is lower hospital utilization under capitation [Luft (1981). Manning et al. (1984). Hastings et al. (1973)]. The initializing data for the simulations, discussed in the next section, incorporates this observation.

322

J.M.

Muldoon and G.L. Stoddart. Publicly financed competition

hospital utilization such that by the end of some finite period its hospital utilization rate equals that found in the capitation modality. Various horizons and paths for adjustment could be used for this scenario; for illustration, Model II assumes that the adjustment occurs linearly over five years. Model II does not allow for any counter response by the capitation modality. If the capitation modality is already on the efficiency frontier in its utilization of hospital services then this may be a reasonable assumption. However, if hospital utilization could be reduced without reducing effectiveness or denying needed care, then the capitation modality might counter by lowering its hospital utilization rate. If so, then the estimates of savings from Model II will be conservative. It is important to note that a positive response by the fee-for-service modality on hospital utilization does not impose a corresponding adjustment in fee-for-service ambulatory utilization or expenditures. Consequently, the model does not attempt to account for relationships that might exist between hospital and ambulatory care. Nor does existing literature offer much quantitative evidence to guide the modelling of these relationships.15 An expenditure-reducing response is only one possible response to lost market share. The fee-for-service sector might react ‘perversely’. The perverse response assumes that the fee-for-service modality tries to maintain its income not by competing for market share but by increasing the number of ambulatory services that it provides to its remaining patient population, hence increasing ambulatory costs. Model III illustrates the effects of this [the dotted line (b) in fig. 1 is now active] by assuming that the fee-for-service modality increases its ambulatory utilization by 10% each year for the duration of the simulation. The importance of this scenario lies not in the specific time path (or even in the magnitude) of the reaction but in the acknowledgement that a perverse response is a possibility and in the demonstration that such a response would increase community expenditures for both modalities in this case because of the nature of the institutional arrangement linking the capitation rate to behaviour in the fee-for-service sector. Each of the first three models assumes this linkage. Although the linkage represents current policy, it does not allow the capitation modality to turn to its competitive advantage any internal economies it may achieve, either through lower utilization of ambulatory services or more cost-effective production of services, for example through economies of scale or substitution of nurse practitioners for physicians. To investigate the potential “It is possible that major reductions in hospital utilization would result in some increase in ambulatory utilization in the fee-for-service sector. Under the institutional arrangements in Model II, this increase would in turn increase reimbursement to the capitation modality. Model II results would then be over-estimates of potential savings.

J.M.

Muldoon and G.L. Stoddart, Publicly financed competition

323

Table 2 Initial

values for variables

in the simulation

model.

Variable

Description

Initial value

CAPHVT

Capitation modality hospital utilization rate

0.85 (patient

days/person)

FFSHUT

Fee-for-service modality hospital utilization rate

I.21 (patient

days/person)

FAMCPM

Fee-for-service ambulatory cost per member

SlO2.68 (1978-1979

dollars)

CAMCPM

Caoitation ambulatorv cost per member _

S87.23 (lirst oeriod. fl02.6g(subsequent

1978-1979 periods)

TPOP

Total community

80,000

FFSIOP

Initial fee-for-service modality population

40,000 (SO/SO market

COSTPD

Cost per patient

S167.86 (1978-1979

PTELAS

Fee-for-service elasticity

population

day enrollment

dollars)

’

split) dollars)

-0.25

significance of lower ambulatory costs in the capitation modality, the linkage of the capitation rate to average fee-for-service ambulatory cost is removed in Model IV [the dotted line (c) in fig. 1 is no longer active].16 The new assumption is that the Ministry of Health negotiates independently with the capitation modality over reimbursement, with the outcome that capitation rates more closely reflect production costs and servicing intensity within that modality. Finally, Model V illustrates the combined effect of independent capitation rate setting and a positive hospital utilization response by the fee-for-service sector [in fig. 1 the dotted lines (b) and (c) are not active but the line (a) is]. This scenario is the most optimistic of the five presented here with regard to potential savings.

3. Data To begin the simulation, initializing values are required for the eight variables listed in table 2. With the exception of the enrollment elasticity (PTELAS), initial values were based on the experience of Sault Ste. Marie, Ontario, a community in which fee-for-service and capitation modalities similar to those in this model have existed for twenty-five years.” 16This restructuring could also be interpreted as a proxy scenario for the effects of benefit competition. For details of this analysis, see Muldoon (1988). “For a detailed account of the introduction, growth and performance of the multi-specialty, prepaid group practice, The Sault Ste. Marie and District Group Health Centre, which constitutes the capitation modality in Sault Ste. Marie, see Lomas (1985).

324

J.M.

Muldoon

and G.L. Stoddart,

Publicly /inunced

competition

Under public health insurance the two modalities have ‘competed’ for patients informally, but there has been no formally structured competition nor any direct charges to patients in either modality. Nevertheless, this setting provides the closest Canadian approximation to the institutional environment assumed in the simulation model and would be the logical market area for experimentation with formal competition based on publicly administered enrollment charges. Values for the hospital utilization rate and the ambulatory cost per enrollee in each modality were drawn from a comparison by Wolfson (198 1) of the capitation and fee-for-service sectors in Sault Ste. Marie.18 Wolfson compared the hospital and ambulatory utilization of two groups of approximately 30,000 patients each, one of which received ambulatory services only from the capitation modality while the other received similar services from the fee-for-service modality, for the period 1 July, 1978 to 30 June, 1979. The two groups were matched on age, sex and prior hospitalization experience, the last criterion being a crude attempt to standardize for health status. Each group had identical public health insurance coverage for both physician and hospital services. Because the composition of the groups was not determined by consumer enrollment decisions in response to modality ‘prices’, the use of the Wolfson data in the simulation implicitly assumes that the utilization differences found in that study would not be significantly different if consumers did in fact face such an enrollment decision.” The initial values for the hospital utilization rates for the capitation and fee-for-service modalities (CAPHUT and FFSHUT) were set at 0.85 and 1.21 patient days per person, respectively. 2o Wolfson cautions, however, that the fee-for-service hospital utilization rate in his study may be biased upward by as much as 15x, as a result of the method of construction of the fee-forservice patient pool used in the comparison. A value of 1.03 for FFSHUT was therefore used in sensitivity analyses. Ambulatory care expenditure in the fee-for-service sector (FAMCPM) was set at $102.68 per person (in 1978-1979 dollars). The average per capita cost for ambulatory care in the capitation modality (CAMCPM) was set at S87.23 for the first period. In Models I-III it was set at $102.68 for all subsequent “This is the most recent in a series of studies of the Sault Ste. Marie experience which report similar findings, including consistently lower rates of hospital utilization by capitation enrollees. Other studies are reviewed by Muldoon (1988, ch. 4). “This assumption seems reasonable given that the results of U.S. studies comparing hospital utilization of HMO and fee-for-service enrollees in competitive environments parallel the differences in the Sault Ste. Marie setting. Similarities in the Canadian and American experience with the effect of capitation reimbursement on hospital utilization are reviewed by Muldoon (1988, ch. 2). “This difference is largely attributable to lower rates of hospital admission, rather than shorter lengths of stay, for individuals in the capitation modality, which again parallels the HMO experience.

J.,W. Muldoon and G.L. Stoddart, Publicly financed competition

325

periods because of the assumed linkage of the capitation rate to fee-forservice espenditure; in Models IV and V it remained at its first period value. For the year from which the cost and utilization data were drawn the population of Sault Ste. Marie was approximately 80,000. Therefore, total community population (TPOP) was set at this value. There are no projections of population growth or changes in the socio-demographic profile of the community in the models. The initial market split of the population between the two modalities was assumed to be SO/SO.This represents the Sault Ste. Marie experience, but is a high share for the capitation modality compared with the rest of the province of Ontario and the United States. Alternative assumptions about the initial market shares were made in a sensitivity analysis in which the initial fee-forservice market share (FFSIOP) ranged from 50% to 95%. Two hospitals in Sault Ste. Marie service the population of the city and its surrounding area. The 1978-79 average per diem cost of $167.86 for the two was used for cost per patient day (COSTPD). The enrollment elasticity (PTELAS) determines the change in fee-forservice enrollment (and therefore capitation enrollment) in response to the relative price of that modality. Values for PTELAS were derived from the U.S. HMO experience.2 ’ A synthesis of U.S. studies indicates that own priceenrollment elasticities are inelastic; estimates range from -0.004 to -0.64. The initial value of PTELAS was set at -0.25. The range of elasticity values above was employed in a sensitivity analysis.

4. Results The impact on health care expenditure of the existence of a capitation sector and the introduction of forma! competition between it and the fee-forservice sector is presented in tables 3-5. A!! figures are reported in 1978-79 Canadian dollars for a simulation horizon of 10 years. The present values of cumulative health care costs and savings in the five competition models are displayed for discount rates of 5% and 10%; the reporting and discussion below uses the 10% figures for conservatism. For each mode!, the savings attributable to competition are calculated as the difference between total community health care expenditure with competition between fee-for-service and capitation modalities and the corresponding expenditure under a one-modality, fee-for-service system. In the latter case, based on the initial values of the fee-for-service modality variables in “For a more detailed review of the American experience, and elasticity calculations based on premium and enrollment data from a number of U.S. locations, see Valiante (1976). McGuire (1981). and Muldoon (1988).

J.M.

326

Muldoon

and G.L. Stoddart,

Publicly

financed

competition

Table 3 Summary of model results. Present value of cumulative community health care cost (million S)

Present value of cumulative community (dis)savings to government (million S)

Savings as a percentage of baseline community health care cost

Baseline

5% 10%

198.34 165.35

Model I

5%

21.49 17.98

10.8 10.9

_

10%

176.85 147.37

Model II

5% 10%

166.99 139.92

31.35 25.43

15.8 15.4

Model 111

5% 10%

225.57 183.90

(27.23) (18.55)

(13.7) (11.2)

Model IV

5% 10%

171.96 143.39

26.38 21.96

13.3 13.3

Model V

5% 10%

162.24 136.06

36.10 29.29

18.2 17.7

table 2, total health care expenditure for the ten year period is $165.35 million. This figure is referred to as the baseline community health care cost. Table 3 summarizes the estimated savings from the five competition models, based on the initial values in table 2. Tables 4 and 5 present estimates of the marginal savings attributable to the individual components of competition, for Models I and V, respectively.

4.1. Model I - No response Model I demonstrates the impact on expenditure of a capitation sector like the one in Sault Ste. Marie. It estimates the savings resulting from the existence of a mature capitation modality (with lower hospital utilization than the fee-for-service modality) and a one-time shift in market share in response to the enrollment charge. The cumulative community health care cost for this model is $147.37 million, a saving of $17.98 million or approximately 11% of the baseline cost with only a fee-for-service sector (table 3). The saving can be disaggregated into three separate effects (table 4): (1) the existence of the capitation sector, which reduces expenditures by $20.55 million, (2) the response by consumers to the enrollment charge, which generates additional savings of $1.44 million, and (3) the linkage of capitation

327

J.&f. Muldoon and G.L. Stoddart, Publicly financed competition

Table 4 Marginal

Year

savings

Existence capitation modality

of

attributable

to the components

of competition

Consumer” response to enrollment charge

Linkage of capitation rate to fee-for-service ambulatory cost

in model I (million

Consume? response to enrollment charge

S).

Total

I 2 3

3.04 3.04 3.04

_ 0.25 0.25

-0.67 -0.67

-0.03

3.04 2.62 2.59

10

3:04

012s

-0:67

- 0:03

2:59

1.78 1.44

- 4.76 - 3.86

-0.18 -0.15

Present oalue 5% 24.65 10% 20.55 “Consumer bConsumer

response response

to the enrollment to the enrollment

charge charge

payments to fee-for-service expenditures expenditures by $4.01 million.22

in period in period

21.49 17.98

2. 3.

for ambulatory

4.2. Mociel II - Positive response by the fee-for-service

care, which increases

modality

In this model, cumulative community health care cost is $139.92 million, a reduction of baseline cost by approximately 15% (table 3). The savings in this model are greater than in Model I by $7.45 million. The additional savings illustrate the impact of the reduction in the fee-for-service hospital utilization rate and its effect on modality cost. 4.3. Model III - Perverse response by the fee-for-service

modality

In Model III cumulative community health care expenditure is $18.55 million higher under competition than under a one-modality, fee-for-service sector (table 3). Baseline cost is increased by approximately 11%. The capitation modality continues to have lower hospital utilization but, as the fee-for-service modality tries to maintain income by increasing ambulatory utilization, increases in fee-for-service ambulatory cost per capita increase the “The linkage causes capitation ambulatory cost per capita to increase which then causes the enrollment charge to increase in the next period. Therefore, the increase in expenditures of f4.01 million is composed of an increase of 53.86 million due to the increase in capitation ambulatory cost plus an increase of SO.15 million due to the movement of consumers in response to the new enrollment charge.

315

J.M.

M uldoon and G.L.

Sroddarr, Publicly jinanced competition Table

Marginal

Year I 2 3 4 5 6 7 8 9 IO

savings

Existence capitation modality

attributable

of

3.04 3.04 3.04 3.04 3.04 3.04 3.04 3.04 3.04 3.04

Present value 5”o 24.65 lo”,, 20.55

Consumer response to enrollment charge

of competition

Independent capitation rate setting and positive response by the fee-forservice modality

_

in model

0.45 0.87 1.30 1.74 2.18 2.19 2.19 2.19

3.04 3.29 3.74 4.16 4.59 5.03 5.48 5.49 5.49 5.49

1.78 1.44

9.67 7.30

36.10 29.29

total

capitation

expenditure

V

Total

0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25

capitation rate, thereby increasing in the capitation modality.

4.4. Model IV - Independent

5

to the components (million S).

on ambulatory

services

rate setting

In this simulation, unlike Models I to III, the first-period difference in ambulatory cost between the two modalities persists through all periods. This is meant to illustrate the impact on expenditure if the Ministry of Health were to set capitation rates on the basis of the capitation modality’s own performance rather than linking rates to experience in the fee-for-service modality. Cumulative community health care expenditure is $143.39 million, a saving of $21.96 million or approximately 13% of baseline cost (table 3).

4.3. Model V - Combined independent capitation response by the fee-for-service modalit]

rate setting and positive

capitation rate Model V illustrates the combined effect of independent setting and a positive response by the fee-for-service modality on hospital utilization. Baseline cost is decreased by $29.29 million, or approximately 18% (table 3). The savings attributable to the individual components of competition are presented in table 5. The existence of the capitation sector, with its initial enrollment and lower ambulatory and hospital costs, generates $3.04 million in savings annually. The cumulative saving of S20.55 million

J.M.

Muldoon

and

G.L. Stoddart,

Publicly financed

competition

329

Table 6 Summary

results of the sensitivity

analyses

Sensitivity Lower bound

Variable Capitation

modality

Enrollment

elasticity

Fee-for-service rate

market

modality

share

hospital

5% -0.004

for model V.’

range Upper bound 50% -0.64

Present value of cumulative savings government (million S) Lower bound

Upper bound

18.66

29.29

28.60

30.32

16.65

29.29

to

utilization 1.03

“Each row indicates an independent initial values (table 2).

sensitivity

analysis

1.21 with remaining

variables

set at their

from this component is approximately 70% estimated total savings. The combined effect of the elimination of greater hospital utilization by the feefor-service modality and the maintenance of the first-period lower ambulatory cost of the capitation modality throughout the simulation decreases baseline cost by a further $7.30 million, which represents approximately 25% of estimated total savings. Movement of cost-conscious consumers between modalities in response to annual enrollment charges accounts for the remaining 5%.

4.6. Sensitivity

analyses

Tables 3-5 report results based on the initial values of the variables in table 2. To investigate the sensitivity of the results to these initial values, numerous additional simulation analyses were performed using a range of values for the initial fee-for-service market share, the enrollment elasticity and the initial hospital utilization rate difference between the two modalities. The impact of these sensitivity analyses on Model V is shown in table 6. Further sensitivity analyses can be found in Muldoon (1988). Changes to the initial value of the fee-for-service modality market share produce cumulative savings relative to baseline cost that range from $18.66 million for a 95% share to $29.29 million for a 50% market share. These estimates of cumulative savings are approximately ll-18% of baseline cost, respectively. For initial values of the enrollment elasticity ranging from -0.004 to -0.64, estimates of cumulative savings are $28.60 to $30.32 million, a reduction of baseline cost by 17-18% approximately. For initial values of the fee-for-service modality hospital utilization rate ranging from

330

J.M.

Muldoon

and G.L. Stoddart,

Publicly financed

competition

1.03 to 1.21 patient days per person, estimates of cumulative savings are $16.65 to S29.29 million, or approximately l&18% of baseline cost. 5. Discussion Although more complex models and scenarios could be pursued, this set of relatively simple models suggests that competition of the type depicted in fig. 1 could, under certain plausible circumstances, have a significant impact on health care expenditure. With the exception of Model III (in which a perverse response by the fee-for-service modality is transmitted to the entire system through the specific method assumed for capitation rate setting), estimates of cumulative savings associated with two-modality competition are positive and range from S18-$29 million approximately, which is 1l-18% of estimated expenditure for a one-modality, fee-for-service system (table 3). To place the magnitude of this potential impact in perspective, it should be recalled that the estimates were based on a 10 year simulation horizon and a community population of 80,000. Future savings were discounted at 10% per annum and were presented in 1978-79 dollars; in current (1987) dollars, discounted at 5x, cumulative savings in Model V, for example, would be approximately $50 million. Moreover, public revenue which would be generated by the enrollment charge was not included in estimation of the impact on expenditure. The present value of the cumulative public revenue generated by the charges in Model V is $12 million. Results concerning the contribution of specific components of the competition models to the overall impact on expenditure yield three interesting observations. First, to the extent that the capitation modality’s practice style (for hospital services, ambulatory services, or both) results in lower per capita expenditure, provision of health services through this modality to individuals who would otherwise have been cared for by fee-for-service providers will lead to cost savings even without formal competition based on enrollment charges. Furthermore, the savings can be substantial, as the first columns of tables 4 and 5 illustrate, based on the experience of a wellestablished capitation modality in Sault Ste. Marie, Ontario. In the case of the specific models in tables 4 and 5, and in similar analyses of the other models, the existence per se of the capitation modality, even with a low market share, made the largest contribution of the different components of competition to estimates of cumulative savings. Second, as illustrated by table 4 and (vividly) by the contrast between the results of Models III and IV in table 3, linkage of the capitation rate to experience in the fee-for-service sector leads to a reduction in savings, and can lead to substantially higher expenditure in a competitive system than under an entirely fee-for-service system. Third, the enrollment charge and the response to it by consumers appear

J.M.

Muldoon and G.L. Stoddart, Publicly financed competition

331

not to play a significant role in generating savings vis-a-vis components such as the existence of the capitation modality, the fee-for-service hospital utilization response, and independent capitation rate setting (table 5). This is in part due to the assumption of an inelastic value for the enrollment elasticity variable (PTELAS); however, this assumption is consistent with experience to date in the United States. The sensitivity analyses in table 6 indicate that estimated savings with competition remain large and positive over a wide range of values for the capitation modality market share, the fee-for-service hospital utilization rate, and the enrollment elasticity. However, the results are very sensitive to changes in the values of the first two of these variables. The results are relatively insensitive to changes in the value of the enrollment elasticity. Sensitivity analysis of the effect of low market share for the capitation modality on estimated savings is particularly relevant to the current Canadian scene, which the fee-for-service modality dominates. The analysis suggests that estimated savings are substantial even at very low market shares for the capitation modality. In Model V, for example, when the capitation modality begins with a 5% market share the estimated savings are $18.66 million (table 6). In a sensitivity analysis on Model V combining the three assumptions least favourable to finding savings from competition (a capitation modality initial market share of 5%, an enrollment elasticity of -0.004, and a fee-for-service initial hospital utilization rate of 1.03 patient days per person) estimated savings were $8.91 million. Aside from the effects of features of the model structure discussed earlier, the manner in which competitive counter-responses are modelled may impart a conservative bias to estimates of savings. In the models presented here, the capitation modality begins the simulation with lower per capita cost, and the fee-for-service modality reacts (or does not react, as in Model I). There are no further counter-responses by either modality. Yet, if either modality is inside its efficiency frontier, it might be possible for that modality to lower per capita cost further in response to more intense competition. Although more complex sequences of reactions could be included in more sophisticated models, they would only reinforce the findings and conclusions of the basic models. There are improvements which could be made to the basic model structure summarized in fig. 1, however. For example, it was assumed that new enrollees generate the same average costs as existing members of a modality. Instead, these costs might be modelled as a function of market share. Similarly, enrollment elasticity might be modelled as a function of market share, instead of remaining constant. Perhaps the most useful extension of the model structure, if appropriate initializing data could be found, would be one which accommodated vertical integration in the production of ambulatory and hospital services and tradeoffs in their utilization. Nevertheless, the simulation framework presented here provides the first

332

J.M.

Muldoon

and G.L. Stoddart,

Publicly financed

competition

quantitative estimates of the potential impact of competition on health care expenditure in Canada and identifies several variables and issues for closer analytic scrutiny or more detailed policy discussion. 6. Policy significance Since the completion of Canada’s system of universal, public health insurance in 1971, further innovation in health care financing and delivery has been slow and difficult [Hastings and Vayda (1986)]. This is especially true for alternative (to fee-for-service) delivery modalities which provide incentives for changes to practice style. Competition in the delivery of publicly financed health care, increasingly discussed internationally [Saltman and von Otter (1987) and Freund (1987)-J, is one option available to Canadian policymakers, although it is by no means the only one [Ontario (1974) and Horne (1984)]. The research in this paper indicates at least the potential for competition to have a significant impact on Canadian health care expenditure. Whether the impact would in fact occur and the potential savings be realized is a separate, but critical question which warrants further analysis and discussion prior to any experimentation with a policy of publicly financed competition. Several factors need to be considered. How would sufficient capacity in the alternative delivery modalities be introduced in a timely fashion? What upgrading of provincial government information systems would be necessary, and what would the implementation costs of the policy be? In addition to operational issues, there are legislative interpretations or changes that might be required to permit the necessary enrollment and enrollment charges. Canadian consumers currently enjoy unrestricted choice of provider and access to services on uniform terms and conditions. Key aspects of performance, assumed in the simulation models, cannot be taken for granted. The absence of quality differences (real or perceived) between modalities, the monitoring and adjustment for adverse selection, and the effective management of hospital capacity (including bed closures) by provincial authorities are all integral to the success of a formal system of publicly financed competition. Results on the marginal savings attributable to components of the competition models suggest, however, that it may not be necessary to go so far as a system of formal competition based on publicly administered enrollment charges in order to capture a significant portion of the potential savings associated with the capitation modality. The marginal contribution of formal competition to estimates of savings was considerably smaller than that arising from the existence of a capitation sector which had achieved a sizeable market share under existing, informal competition and which made less intensive use of hospitals than the fee-for-service sector.

J.M.

Muldoon

and G.L.. Stoddart,

Publicly financed

competition

333

Given the political risk and adjustment costs that would accompany a policy of formal competition, this may be the most important finding of the simulations. It suggests that alternative policies to encourage the growth of the capitation sector (which currently services only 2% of Ontario’s 9.2 million people) and to reduce hospital utilization by fee-for-service physicians might by themselves contribute significantly to expenditure control. The design of such policies will require new information. A better understanding of the factors affecting provider and consumer acceptance of the capitation modality and the current practice styles of potential ‘recruits’ from among fee-for-service physicians will be necessary in order to ensure that new entrants adopt and maintain the practice style of older firms in the sector, like the capitation group in Sault Ste. Marie. Also, independent capitation rate setting should be part of any new policy development in the capitation sector. Although linkage of the capitation rate to corresponding fee-for-service expenditures might be understandable and/or tolerable in the context of a tiny capitation sector intended to offer an alternative method of payment to a few selected physicians, it would be illadvised as part of any systematic attempt to use the capitation sector as a policy vehicle for cost control or efficiency improvement. Appendix: Variable definitions and model equations Variable list CAMCPM CAPAMC CAPFRC CAPHCT CAPHUT CAPPOP CAPPRM CAPTOT COMCOS COSTI COSTPD DEL DPSTAR GO VT1 GO VT2 FAMCPM FFSA MC FFSHCT

J.H.E.-D

Capitation Modality Ambulatory Cost Per Member Capitation Modality Ambulatory Cost Capitation Modality Market Share Capitation Modality Hospital Cost Capitation Modality Hospital Utilization Rate Capitation Modality Population Capitation Modality Average Per Capita Cost Capitation Modality Total Cost Community Health Care Cost Percentage Increase In Cost Per Patient Day Cost Per Patient Day Lag of One Period Percentage Change in Relative Price Government Reimbursement of Least-Cost Modality (Capitation) Government Reimbursement of Least-Cost Modality (Fee-For-Service) Fee-For-Service Modality Ambulatory Cost Per Member Fee-For-Service Modality Ambulatory Cost Fee-For-Service Modality Hospital Cost

334

J.M.

Muldoon

and G.L.

FFSHUT FFSIO P FFSPOP FFSPRM FFSTO T INCAMC LSTAR NNCAMC PSTAR PTELAS RPRICI RPRIC2 SA VING TOTAMC TOTCST TOTHCT TO TSA V TPOP

Fee-For-Service Modality Hospital Utilization Rate Initial Fee-For-Service Modality Population Fee-For-Service Modality Population Fee-For-Service Modality Average Per Capita Cost Fee-For-Service Modality Total Cost Capitation Modality Initial Ambulatory Cost Relative Price Difference Lagged One Period Capitation Modality Current Ambulatory Cost Relative Price Difference Fee-For-Service Enrollment Elasticity Relative Price (Fee-For-Service/Capitation) Relative Price (Capitation/Fee-For-Service) Savings Per Year Total Ambulatory Cost Cumulative Community Health Care Cost Total Hospital Cost Cumulative Savings to Capitation Modality Total Community Population

DYNAMO

Stoddart,

Publicly

equations

for

jhanced

competition

Model I

Community size and modality market share C L N C A A

Total Community Population TPOP = 80,000 FFSP0P.K = FFSP0P.J + (DT)*(PTELAS*FFSPOP.J* DPSTAR.JK) Fee-For Service Modality Population FFSPOP = FFSIOP Initial Fee-For-Service Modality Population FFSIOP = 40,000 CAPP0P.K =TPOP - FFSP0P.K Capitation Modality Population Capitation Market Share CAPFRC.K = CAPPOP.K/TPOP

Consumer enrollment decision A C C A A R

Relative Price PSTAR.K = SWITCH(GOVTl.K,GOVT2.K,PERM) PREM = 0.0 Fee-For-Service Enrollment Elasticity PTELAS = -0.25 RPRIC1.K = [(FFSPRM.K - CAPPRM.K)/(CAPPRM.K)] + 1 Relative Price (FFS/CAP) RPRIC2.KL = [(CAPPRM.K - FFSPRM.K)/(FFSPRM.K)] + 1 Relative Price (CAP/FFS) DPSTAR.KL = (PSTAR.K - LSTAR.K)/LSTAR.K o? Change in Relative Price

J.M.

A A C A

C L R C N A C

costs

CAPHCT.K = CAPPOP.K*CAPHUT*COSTPD.K Capitation Modality Hospital Cost Capitation Modality Hospital Utilization Rate CAPHUT = 0.85 C0STPD.K = C0STPD.J +(DT)*(COSTI.JK) Cost Per Patient Day COSTI.KL = CLIP(COST*COSTPD.K,O,TIME.K,l) Increase in Cost Per Patient Day COST = 0.0 COSTPD = 167.86 Initial Cost Per Patient Day FFSHCT.K = FFSPOP.K*FFSHUT*COSTPD.K Fee-For-Service Modality Hospital Cost FFSHUT = 1.21 Fee-For-Service Modality Hospital Utilization Rate

Ambulatory

A A A A

costs

CAPAMC.K = CLIP(NNCAMC.K,INCAMC.K,TIME.K,2) Capitation Modality Ambulatory Cost 1NCAMC.K = CAPPOP.K*(87.23) Initial Capitation Ambulatory Cost NNCAMC.K = CAPPOP.K*(FFSAMC.K/FFSPOP.K) Current Capitation Ambulatory Cost FFSAMC.K=(FFSPOP.K)*(102.68) Fee-For-Service Modality Ambulatory Cost

Total and average

A A A A

335

LSTAR.K = SMOOTH(PSTAR.K,DEL) Relative Price Lagged One Period GOVT1.K=CLIP(RPRIC1.K,1,TIME.K,1) One Year Lag DEL= 1.0 GOVT2.K=CLIP(RPRIC2.K,l,TIME.K,1) Government reimbursement of least-cost modality

Hospital

A

Muldoon and G.L. Stoddarr, Publicly financed competition

CAPT0T.K

per capita costs

= CAPHCT.K + CAPAMC.K Total Capitation Cost CAPPRM.K = CAPTOT.K/CAPPOP.K Average Per Capita Cost (Capitation Modality) FFST0T.K = FFSHCT.K + FFSAMC.K Total Fee-For-Service Cost FFSPRM.K = FFSTOT.K/FFSPOP.K Average Per Capita Cost (Fee-For-Service Modality)

J..\f. Muldoon and G.L. Stoddart, Publicly jnanced

336

competition

Summary variables

A

L C A L C A

A

A A

SAVINGKL = CLIP((FFSPRM.K - CAPPRM.K)* (CAPPOP.K,O,TIME.K,l)) Savings Per Year Cumulative TOTSAV.K=TOTSAV.J+(DT)*(SAVING.JK) Savings TOTSAV = 0.0 COMCOS.KL = CLIP(CAPT0T.K + FFSTOT.K,O,TIME.K,l) Community Cost Per Year TOTCST.K=TOTCST.J+(DT)*(COMCOS.JK) Cumulative Community Cost TOTCST = 0.0 CAMCPM.K = CAPAMC.K/CAPPOP.K Capitation Modality Ambulatory Cost Per Member FAMCPM.K = FFSAMC.K/FFSPOP.K Fee-For-Service Modality Ambulatory Cost Per Member T0THCT.K = CAPHCT.K + FFSHCT.K Total Hospital Cost T0TAMC.K = CAPAMC.K + FFSAMC.K Total Ambulatory Cost

Notes

The DYNAMO simulation language incorporates the following types of structural equations [see Pugh-Roberts Associates, Inc. (1984)]. L

level equation - the current value of the variable at a simulated time K (denoted by the timescript .K) is equal to its value at the previous time-step (timescript .J) plus DT (the size of the time-step) times the rate of change in some other variable (with timescript .JK)

R

rate equation - rate variables are computed at the present time for the interval K to L. The use of the double timescript (.KL or .JK) signifies that the rate is assumed constant over the timestep.

A

auxiliary equation - computed at the present time from other variables computed earlier within the present timestep.

C

constants.

References Anderson, Gerard F., Earl P. Steinberg, James Holloway and Joel C. Cantor, 1986, Paying for HMO care: Issues and options in setting capitation rates, Milbank Quarterly 64, 548-565.

J.M.

Muldoon and G.L. Stoddart, Publicly jinanced competition

337

Barer, Morris L. and Robert G. Evans, 1986, Riding north on a south-bound horse? Expenditures, prices, utilization and incomes in the Canadian health care system, in: Robert G. Evans and Greg L. Stoddart, eds., Medicare at maturity: Achievements, lessons and challenges (University of Calgary Press for the Banff Centre School of Management, Calgary) 53-163. Bujold, Guy, 1987, Alternative delivery modalities in Canada: Problems, potential, and policy, in the Final report of the Burlington working conference on alternative delivery modalities in Canada (Health Economics and Policy Analysis Group, McMaster University, Hamilton) Appendix C-3. Contandriopoulos, Andre-Pierre, Francois Champagne and Raynald Pineault. 1987, Incentives through payment modalities in the medical care sector: Framework and empirical evidence, in: John Horne, ed., Proceedings of the third Canadian conference on health economics (University of Manitoba, Winnipeg, Manitoba) 57-87. Cunningham, Frances C. and John D. Williamson, 1980, How does the quality of health care in HMO’s compare to that in other settings?, The Group Health Journal 1, 4-25. Donabedian, Avedis, 1983, The quality of care in a health maintenance organization: A personal view, Inquiry 20, 218-222. Enthoven, Alain C., 1978, Consumer choice health plan, New England Journal of Medicine 298, 650-658, 709-720. Enthoven, Alain C., 1980, Health plan: The only practical solution to the soaring cost of medical care (Addison-Wesley, Reading, MA). Enthoven, Alain C., 1988, Managed competition of alternative delivery systems, Journal of Health Politics, Policy and Law 13, 305-321. Evans, Robert G., 1981, Incomplete vertical integration: The distinctive structure of the health care industry, in: John van der Gaag and Mark Perlman, eds., Health. economics and health economics (North-Holland, Amsterdam) 329-354. Evans, Robert G., 1984, Strained mercy: The economics of Canadian health care (Butterworths, Toronto). Evans, Robert G. and Greg L. Stoddart, eds., 1986, Medicare at maturity: Achievements, lessons and challenges (University of Calgary Press for The Banff Centre School of Management, Calgary). Freund, Deborah A., 1987, Competitive health plans and alternative payment arrangements for physicians in the United States: Public sector examples, Health Policy 7, 163-173. Hastings, John E.F., Fred D. Mott et al., 1973, Prepaid group practice in Sault Ste. Marie, Ontario: Part I: Analysis of utilization records, Medical Care XI, 91-103. Hastings, John E.F. and Eugene Vayda, 1986, Health services organization and delivery: Promise and reality, in: Robert G. Evans and Greg L. Stoddart, eds., Medicare at maturity: Achievements, lessons and challenges (University of Calgary Press for The Banff Centre School of Management, Calgary) 337-384. Hornbrook, Mark C. and Sylvester E. Berki, 1985, Practice mode and payment method: Effects on use, costs, quality and access, Medical Care XXIII, 484-511. Horne, John M., 1984, Publicly financed competition in Canadian health care delivery: Discussion, in: J.A. Boan, ed.. Proceedings of the second Canadian conference on health economics (University of Regina, Regina) 144-153. Lomas, Jonathan, 1985, First and foremost in community health centres: The centre in Sault Ste. Marie and the CHC alternative (University of Toronto Press, Toronto). Luft, Harold, S., 1981, Health maintenance organizations: Dimensions of performance (Wiley, New York). Manning, Willard G., Arleen Leibowitz et al., 1984, A controlled trial of the effect of a prepaid group practice on use of services, New England Journal of Medicine 310, 1505-1510. McClure, Walter, 1982, Implementing a competitive medical care system through public policy, Journal of Health Politics, Policy and Law 7, 2-43. McClure, Walter, 1984, On the research status of risk-adjusted capitation rates, Inquiry 21, 205-213. McGuire, Thomas G., 1981, Price and membership in a prepaid group medical practice, Medical Care XIX, 172-183.

338

J.M.

Muldoon and G.L. Stoddart, Publicly financed competition

Muldoon, Jacqueline M., 1988, The potential contribution of a competitive approach to controlling health care expenditures in Ontario: A simulation model, Ph.D. dissertation (McMaster University, Hamilton, Ontario). Ontario, 1974, Report of the Health Planning Task Force (Ontario Ministry of Health, Toronto). Pugh-Roberts Associates, Inc., 1984, User guide and reference manual for micro-DYNAMO system dynamics modeling language (Addison-Wesley, Reading, MA). Roth, Denis, 1987, The feasibility of alternative delivery modalities in Canada: The policy perspective, in the Final report of the Burlington working conference on alternative delivery modalities in Canada (Health Economics and Policy Analysis Group, McMaster University, Hamilton) Appendix C-4. Saltman, Richard B. and Casten von Otter, 1987, Re-vitalizing public health care systems: A proposal for public competition in Sweden, Health Policy 7, 21-40. Stoddart, Greg L., 1984, Rationalizing the health care system, in: Thomas J. Courchene, David W. Conklin and Gail C.A. Cook, eds., Ottawa and the provinces: The distribution of money and power, 2 (Ontario Economic Council, Toronto) 3-39. Stoddart, Greg L. and James R. Seldon, 1984, Publicly tinanced competition in Canadian health care delivery: A proposed alternative to increased regulation?, in: John A. Boan, ed., Proceedings of the second Canadian conference on health economics (University of Regina, Regina) 121-143. Tholl, William G.. 1987, Publicly tinanced competition: Reaction to the Muldoon-Stoddart Simulation Model, in the Final report of the Burlington working conference on alternative delivery modalities in Canada (Health Economics and Policy Analysis Group, McMaster University, Hamilton) Appendix C-2. Thomas, J. William and Richard Lichtenstein, 1986, Including health status in medicare’s adjusted average per capita cost capitation formula, Medical Care XXIV, 259-275. Valiante, John D., 1976, Analysis of HMO markets (ICF Inc., Washington, D.C.). Ware, John E., William H. Rogers et al., 1986, Comparison of health outcomes at a health maintenance organisation with those of fee-for-service care, Lancet I, 1017-1022. Weller, Geoffrey R. and Pranlal Manga, 1983, The push for reprivatization of health care services in Canada, Britain and the United States, Journal of Health Politics, Policy and Law 8.495-518. Wolfson. Alan D., 1981, Report on the Sault Ste. Marie study (Ontario Ministry of Health, Toronto). Wolfson, Alan D. and Carolyn J. Tuohy, 1980, Opting out of medicare: Private medical markets in Ontario (Ontario Economic Council, Toronto).