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Do Health Systems Respond to the Quality of Their Competitors?

Daniel J. Crespin, PhD; Jon B. Christianson, PhD; Jeffrey S. McCullough, PhD; and Michael D. Finch, PhD
The authors determined whether Minnesota health systems responded to competitors’ publicly reported performance. Low performers fell further behind high performers, suggesting that reporting was not associated with quality competition.
Public reporting may encourage some health systems to take their first steps toward improving diabetes care quality, but these systems may lack the resources needed to develop sophisticated strategies focused on retail competition. Smith and colleagues found that several physician groups had little focus on diabetes care performance prior to reporting as part of the Wisconsin Collaborative for Healthcare Quality.10 These physician groups were likely to implement simple quality improvement strategies when they started reporting compared with the multiple intervention strategies of higher-performing physician groups. In our study, many clinics that were independent or from smaller systems did not begin reporting until it was mandated. Clinics that began reporting with the mandate scored 10 to 30 percentage points lower on the ODC score’s individual measures relative to clinics that began reporting earlier.9

Initial quality improvement efforts take time to execute, because they may include improvements in health information technology, changes in office procedures, and recruitment of quality improvement champions, among others. In this study, some health systems may have been undertaking these steps without yet realizing large gains in quality improvement. These smaller-system and stand-alone clinics also may lack resources needed to implement specific interventions needed to compete based on quality.11

Some health systems may not believe that public reporting ameliorates imperfect information between consumers and providers. A relatively small percentage of patients use public quality measures,7 and the evidence that public reports influence demand is mixed.12 High-performing clinics differentially attracted privately insured patients in our study, although these effects are likely relatively small in terms of total revenue, considering that patients with diabetes represent a fraction of patients. In addition, neither MHCP nor Medicare patients shifted from low-performing to high-performing clinics, therefore reinforcing concerns about the usefulness of public reporting for publicly insured patients, including the Medicare Payment Advisory Commission’s contention regarding quality reporting in the Merit-based Incentive Payment System.13 Health systems may believe that the current level of awareness and engagement is below the threshold needed to make investments in quality competition preferable to other uses of quality improvement resources. This explanation is supported by the evaluation of the Robert Wood Johnson Foundation’s Aligning Forces for Quality (AF4Q) initiative, in which MNCM participated. At the end of between 4 and 8 years of participating in AF4Q, community coalition leaders generally “…did not believe that the ‘competitive market strategy’…would improve provider quality or efficiency. In their experience, too few consumers sought out and used the information in this way…”14 One alternative to attracting patients and improving quality is mergers and acquisitions that allow for horizontal and vertical integration. During this study, larger health systems acquired several smaller systems and stand-alone clinics. These acquisitions were likely mutually beneficial, as they increased the market share of the larger health systems and improved performance at the acquired clinics.15

Limitations

There is potential that competitor performance was mismeasured. Health systems may not view some clinics in their market areas as competitors. For example, a large integrated delivery system may not treat small independent clinics as competitors. However, in our study, a handful of large health systems dominate each market and stand-alone clinics comprise only 13% of clinics.

A complete model of competition ideally would incorporate price and quality information in relation to competitive responses. Although health systems may have attempted to adjust prices to gain bargaining power, MNCM did not report total cost measures until after the conclusion of this study.16 Health systems would have had little reason to adjust quality based on competitor pricing, as it is doubtful that consumer decisions would be based on prices without the appropriate information available.

The substantial presence in this study market of large health systems may raise questions about generalizability to areas where smaller health systems are more dominant. However, recent trends have shown an increase in mergers and acquisitions throughout the United States, making vertically integrated health systems and concentrated markets increasingly the norm.17-19

CONCLUSIONS

Unique aspects of the healthcare market make it difficult to reward and incentivize quality improvement as envisioned in the competitive market paradigm.1 Even when market information asymmetries were addressed through public reporting, we find that health systems did not compete on quality as proponents of retail competition intended. Although public reporting may incentivize quality gains in diabetes care management through other mechanisms, relying on it to promote retail competition among physicians on performance measures is unlikely to be an effective strategy.

Author Affiliations: Division of Health Policy and Management, University of Minnesota School of Public Health (DJC, JBC), Minneapolis, MN; Department of Health Management and Policy, University of Michigan School of Public Health (JSM), Ann Arbor, MI; Children’s Minnesota Research Institute (MDF), Minneapolis, MN.

Source of Funding: This research was funded in part by a grant from Pennsylvania State University as part of the evaluation of the Robert Wood Johnson Foundation’s Aligning Forces for Quality initiative. The funding sources had no role in the design and conduct of the study; collection, analysis, and interpretation of data; or preparation of the manuscript.

Author Disclosures: The authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design (DJC, JBC, JSM, MDF); acquisition of data (DJC, JBC, MDF); analysis and interpretation of data (DJC, JBC, JSM); drafting of the manuscript (DJC, JBC); critical revision of the manuscript for important intellectual content (DJC, JBC, JSM, MDF); statistical analysis (DJC, JSM); and obtaining funding (JBC); administrative, technical, or logistic support (JBC).

Address Correspondence to: Daniel J. Crespin, PhD, Division of Health Policy and Management, University of Minnesota School of Public Health, 420 Delaware St SE, MMC 729, Minneapolis, MN 55455. Email: daniel.crespin@gmail.com.
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