Nonprice competition and quality of care in managed care: the New York SCHIP market.

The U.S. government is deeply involved in the health care market, and in the price control settings, one of the government's concerns is quality of care. Since managed care started expanding throughout the country in the 1980s, government and private organizations have been trying to develop quality measurement tools and monitor the quality of care. For example, the Consumer Assessment of Health Plans Survey (CAHPS®) and the Health Plan Employer Data and Information Set (HEDIS®) were developed to assess the quality of managed care plans in the 1990s. Starting in 1999, Congress has required the Agency of Healthcare Research and Quality (AHRQ) to produce an annual National Health Quality Report (AHRQ 2003). In recent years, an increasing number of states have switched their Medicaid or State Children's Health Insurance Program (SCHIP) from fee-for-service to managed care (Kaiser Family Foundation 2001). For example, New York State and the State of Florida rely on managed care plans to provide health care for SCHIP enrollees. In New York State, mandatory Medicaid managed care has been implemented in about 30 counties (NYSDOH 2005). The New York State government sets the monthly capitation rate for participating managed care plans and releases an annual quality report of all the managed care plans operating in the state. The relationship between quality of care and competition has been one of the focuses of researchers for the last several decades. Most prior studies are about hospital competition, which is subject to price control under the Medicare Prospective Payment System (PPS). Based on the data before 1983 when the PPS was implemented, many studies show a positive association between competition and quality or cost (e.g., Joskow 1980; Robinson and Luft 1985, 1987; Noether 1988). Those studies analyzing the data after 1983, however, provide mixed evidence on the relationship between competition and quality or cost because there are two forces at play: the PPS and the penetration of managed care. The PPS actually acts as a price control mechanism, and higher price is associated with higher quality if assuming the same market competition level, as shown in the study by Cutler (1995). Alternatively, if the price is held constant, increasing market competition would result in higher quality and higher cost. Theoretically, managed care penetration would lower the cost of care, but the PPS would lead to higher costs in more competitive markets. Not surprisingly, the evidence about cost or quality is mixed (e.g., Shortell and Hughes 1988; Zwanziger and Melnick 1988; Dranove, Shanley, and Simon 1992; Manheim, Bazzoli, and Sohn 1994; Kessler and McClellan 2000; Mukamel, Zwanziger, and Tomaszewski 2001; Gowrisankaran and Town 2003). Because managed care plans have financial incentives to reduce cost at the expense of quality of care, the effect of managed care competition on quality is worthy of investigation. However, only a few studies have been conducted in this area. Using a national representative sample from the Community Tracking Study, Sommers and Wholey (2003) regress evaluation of physician thoroughness on health maintenance organization (HMO) competition and other control variables, and conclude that HMO competition increases the evaluation of physician thoroughness among HMO enrollees. Scanlon et al. (2005) assess the association between HMO competition and plan performance as measured by CAHPS and HEDIS, and find that competition is negatively correlated with three out of six quality domains. Another study using longitudinal data by Scanlon et al. (2006), however, shows that more HMO competition is associated with better overall ratings of health plans, but is not consistently correlated with HEDIS measures. Despite the states' increasing dependence on managed care to provide comprehensive coverage for the low-income population, few studies have been conducted to examine the effect of nonprice competition on the quality of care. Nonprice competition means a situation where price does not play a role in market competition. Using the 2002 New York State Managed Care Plan Performance Report and 2001 Annual Managed Care Enrollment Report, we are able to assess the effect of nonprice competition on quality of care within the New York SCHIP market,1 which is subject to the price control from the state government.