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Health Care Costs and Financing

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Managed care's reliance on supply-side control of services does not necessarily eliminate least valued treatment

Managed care's efforts to control the use of health care services has led to widespread dissatisfaction and calls for major reform and consumer protection. Consumers and health care providers most dislike rules about which services may be reimbursed in what circumstances (preauthorization) and financial incentives to providers to choose less costly treatments or simply no treatment. In a recent commentary, Meredith B. Rosenthal, Ph.D., of the Harvard School of Public Health, and Joseph P. Newhouse, Ph.D., of Harvard University, note the lack of evidence that such supply-side rationing mechanisms do, in fact, eliminate more low value than high value treatment.

Managed care organizations apparently assume that consumers and providers attach the same value to specific services or, if not, that provider values should trump consumer values because providers have superior knowledge. The increasing use of coinsurance in managed care and the introduction of tiered copayments (for example, lower copayments for generic versus brand name medications) represent a return to greater demand-side rationing. This brings consumer willingness-to-pay more into the equation. In this case, consumers can decide for themselves whether goods or services are worth the additional cost.

Outside of low-income and vulnerable populations, cost sharing has a role to play, not only as an alternative to supply-side incentives to achieve lower spending, but also as a mechanism for eliciting willingness-to-pay, explain the authors. Their work is supported in part by the Agency for Healthcare Research and Quality (HS10803). They call for research on the nature of provider and consumer rationing decisions to inform incentives that will lead to an efficient allocation of health care services.

See "Managed care and efficient rationing," by Drs. Rosenthal and Newhouse, in the Summer 2002 Journal of Health Care Finance 28(4), pp. 1-10.

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