Highlights of 2011 - Institute for Policy Research - Northwestern ...

performance measurement and Rewards
choose outputs that are both alike and different, and how these
forms can coexist despite differential constraints. Testing is for
the mixed hospital industry. An appendix estimates the ability
of differential CEO incentives—base salary, bonus, and their
total—to explain the output differentials.
About the Program
Individual Health Plan Exchanges
According to provisions of the Affordable Healthcare Act,
states are supposed to have a “health insurance exchange” in
place by January 1, 2014. Through these exchanges, individuals
and employees of small firms will be able to select among
plans deemed “qualified” by the federal government, to easily
compare the benefits offered by these plans, and to determine
how much the federal government will subsidize their premiums
and cost-sharing. While much has been written about the costs
associated with the exchanges, some of the benefits have
been poorly quantified—including the “value of choice.” What
would such choice mean in a nation where 80 percent of firms
offering health insurance give workers only one “choice” of
plans? While limited choice can spur cost savings and create
better risk pools, it also prevents employees from selecting
plans that best suit their needs. In a forthcoming article in
the American Economic Journal: Economic Policy, healthcare
economist and IPR associate Leemore Dafny, with economists
Katherine Ho of Columbia University and Mauricio Varela
of the University of Arizona, uses proprietary data on plan
offerings and enrollment for more than 800 large employers
to compare the choices offered by employers with the choices
their employees would make on their own. Their main finding
is that gains from offering more plan choices seem to outweigh
potential premium increases associated with a transition from
large-group to individual pricing.
Transparency and Medical Pricing
Burton Weisbrod, Chair
Scholars from economics, law, management,
political science, social policy, and statistics have
focused research and public policy analysis on the
measurement and rewarding of “performance”
in government and nonprofit organizations. They
are examining how good performance is being
measured in such areas as education, healthcare,
policing, courts, and charities—in search of
common problems and solutions and in search
of reward mechanisms that provide incentives for
efficiency. Research complements IPR’s programs
on Education Policy and Urban Policy.
In the New England Journal of Medicine, Dafny and Harvard University
economist David Cutler take on one of the few areas
to enjoy bipartisan congressional support in the healthcare
debates, price transparency. Around two-thirds of states have
laws mandating full disclosure of pricing (via Sunshine laws) with
the idea being they can help patients compare prices and make
better care choices. But Dafny and Cutler argue that “the wrong
kind of transparency could actually harm patients, rather than
help them.” They point to a discouraging history of use of the
“most favored nation” (MFN) clause in healthcare, which works
to limit competition. Imagine a case where under an MFN contract,
a hospital agrees not to charge a lower price to any other
buyer. Thus, after signing an MFN clause with Insurer B, it could
not offer a lower price to Insurer A, without offering the same
to Insurer B. So prices to Insurer A would tend to rise. The
researchers provide examples of where MFN and transparency
have raised prices in healthcare and other industries such as
ready-mix concrete. While the two laud efforts to raise consumer
cost consciousness and advocate for “copayment transparency”—they
worry that a pricing menu of negotiated payerprovider
prices could raise costs instead of lowering them.
Healthcare Markets, Regulators, and
Certifiers
Discussing economist Kenneth Arrow’s seminal analysis of how
uncertainty and lack of consumer information affect the market,
healthcare economist and IPR associate David Dranove traces
the evolution of research in the field. Better methodology now
confirms that competition has driven costs down. He also
tackles the performance of competitive healthcare markets,
regulatory approaches to containing prices, the use and effectiveness
of healthcare report cards as a quality assurance mechanism,
and pay-for-performance schemes. Dranove, Walter
McNerney Professor of Health Industry Management, argues
that many misunderstood Arrow’s analysis and proposes that
fundamental economic principals can successfully be applied in
the field as long as one accounts for particular insurance and
physician characteristics. He enumerates the research questions
revolving around how to enhance efficiency—i.e., competitive
versus regulated systems, compensation systems to address
conflicts of interest, and third-party certification. The chapter
was included in the Handbook of Health Economics, Vol. 2.
37