Managed Care and Demand

for Health Care

Experimental Health Economics - Basel - March 24, 2023

Boris Polanco, Philip Hochuli

Introduction

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Background and Motivation
● In Switzerland, as in many other countries, health care costs have been continuously rising.
● An important question concerns how to structure the provision of services to ensure cost efficiency and to
avoid unnecessary treatments.
● In Switzerland, health insurance companies are allowed to design and setup managed care models (MCM)
of various types with the goal to provide services in an efficient manner (Art. 41 Abs. 4 KVG).
● Despite substantial average cost differences between MCM and ordinary models, the causal impact of
these models on costs is difficult to assess using observational data due to selection effects. Previous
research using observational data shows ambiguous results with respect to efficiency gains (e.g. Fischer et al.
(2014), Buntin et al. (2006), Reid et al. (2017)).
● In addition, there are two major challenges when it comes to establishing a causal impact of these models:
○ Causal pathways are multiple (provider selection, processes, individual behavior), and it is not clear
which channel drives cost efficiencies to which degree.
○ As pointed out by Fischer et al. (2014), there is a broad variety of MCMs in Switzerland which are
characterized by different processes.

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MCMs from Switzerland’s Largest Health Insurers

https://www.css.ch/en/private-customers/properly-insured/health-insurance/basic-insurance.html https://www.helsana.ch/en/individuals/insurance/basic-insurance.html (March 23, 2023)

(March 23, 2023)
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Research Idea
● Using a controlled lab experiment we want to evaluate whether MCMs alter an individual’s demand for
health care in a way that supports higher efficiency in the system.
● Results from the experiment will clarify whether one of the causal pathways of MCMs that drive efficiency
gains is actually effective (or not).
● The main benefit of a controlled lab experiment is that we can eliminate self-selection into insurance
contracts by randomly assigning individuals to contracts.
● We focus on a common MCM with known mechanisms: primary-physician-first models (“Hausartzmodell”)
where individuals always need to contact their assigned doctor first. The key point here is that this type of
managed-care-model introduces friction into the individual’s decision-making process, and thus extra costs.
● In addition, need to clarify in which way an individual’s demand could be altered:
○ As has been pointed out in the Literature (Fischer et al. 2014, Reid et al. 2017) an important driver of
inefficiencies in the health care system can be demand for “low-value care” where the expected
benefit of treatment is less than costs of treatment.
○ At the same time, must also observe demand changes for high-value care to distinguish between an
efficiency gain and general demand decline.

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Hypothesis
Narrowing the research idea to a specific channel of efficiency (demand for low-value care) and
focusing on a specific MCM, the hypothesis we test using the lab experiment are the following:

1) Primary-physician-first models lower an individual’s demand for low-value-care.

2) Primary-physician-first models do not affect an individual’s demand for high-value-care.

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Experimental Design

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Basic Experimental Setup I
● We randomly assign individuals to either a MCM or an ordinary insurance contract
(between-subject design)
● Individuals are exposed to a variety of health conditions (identical across all individuals)
● For any given condition, individuals need to decide whether to demand care or not which
comes with costs and benefits (tradeoff):
○ Uncertain health benefit which depends on the condition they face
○ Direct cost (opportunity cost, out-of-pocket expenditure)
● Conditions individuals face include both low-value-care setups (expected benefit of
treatment low) and high-value care setups (expected benefit of treatment high)

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Basic Experimental Setup II
● The key difference between the MCM group and the ordinary group is that direct costs
are higher for the MCM group since they are not allowed to contact the “next best”
physician → does this reveal in different decision making?
● The result of our experiment can be deduced from the below matrix: Difference in demand
for low-value care (A-B) and difference in demand for high-value care (C-D)

Value of care \ contract Ordinary MCM

Low A B

High C D
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Technical Details of Experimental Setup
● Between subject setup (with respect to all treatment effects/ hypothesis)
● Number of participants >= 162 based on two-sided power test for proportions with estimated effect
size of 20pp (R: power.prop.test(p1=0.4, p2=0.2, sig.level = 0.05, power = 0.8))
● Participants are students from University of Zurich (big university with own lab), but no other
requirements (e.g. with respect to field of study)
● Each individual makes 10 decisions with respect to 10 different health conditions (all decisions
made at once).
● Health conditions are shuffled differently for each individual (to avoid order effects).
● Individuals have full transparency over (probabilistic) benefits of treatments and costs of treatment.
● At the end of the experiment, we elicit important control variables that could explain differences in
decisions across groups (due to small sample): Risk preferences (e.g. as suggested by Gneezy and
Potter (2014)), age, gender, education level, field of study.

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Payoff Scheme
● Our payoff scheme and game structure is inspired by the scheme used by Fink et al. (2014) where
individuals face demand decisions with unknown benefits and known costs in a repeated game
● Each individual starts with a fix payoff of CHF 20.-
● For a given condition, each individual has two options: to demand or not to demand care.
● The individual’s payoff from making a decision is given as follows:
○ If they demand care, they obtain an uncertain health benefit b with probability Pr(b |
treatment), which depends on the severity of the condition.
○ Also, if they demand care they have a fix cost c to pay, which depends on the insurance
contract.
○ If they do not demand care, they again have an uncertain health benefit b with Pr(b | no
treatment), which depends on the severity of the condition and can be negative.
● Payoffs over 10 decisions are set such that minimum theoretical payoff an individual gets is CHF 0.-
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Experiment Screen (Standard Contract)
Instructions (please read carefully!): Below, you see a set of health conditions (rows). For each condition, you are given
information regarding the benefit you get in case of treatment, the cost of seeking treatment, and the benefit (or harm) in absence
of treatment. For each condition, please indicate whether you seek care or not. Once you entered every decision, simply click on
the “conclude” button in the bottom right.

b | treatment cost b| no treatment Your decision

Condition A 1, with p = 0.8 1 0, with p = 0.99 ⃞ Treat

0, with p = 0.2 -1, with p = 0.01 ⃞ Do not treat

Condition B 3, with p = 0.95 1 0, with p = 0.05 ⃞ Treat

0, with p = 0.05 -2, with p = 0.95 ⃞ Do not treat

Conclude
Notes:
● Condition A: Condition where care is not needed (low-value care). Condition B: Condition where care is needed (high-value care, negative health impact expected in absence of treatment).
● This is an illustration. Actual experiment contains n conditions with different benefits in case of treatment or lack of treatment. 12
Experiment Screen (MCM Contract)
Red circle only for illustration of cost difference

Instructions (please read carefully!): Below, you see a set of health conditions (rows). For each condition, you are given
information regarding the benefit you get in case of treatment, the cost of seeking treatment, and the benefit (or harm) in absence
of treatment. For each condition, please indicate whether you seek care or not. Once you entered every decision, simply click on
the “conclude” button in the bottom right.

b | treatment cost b| no treatment Your decision

Condition A 1, with p = 0.8 2 0, with p = 0.99 ⃞ Treat

0, with p = 0.2 -1, with p = 0.01 ⃞ Do not treat

Condition B 3, with p = 0.95 2 0, with p = 0.05 ⃞ Treat

0, with p = 0.05 -2, with p = 0.95 ⃞ Do not treat

Conclude
Notes:
● Condition A: Condition where care is not needed (low-value care). Condition B: Condition where care is needed (high-value care, negative health impact expected in absence of treatment).
● This is an illustration. Actual experiment contains n conditions with different benefits in case of treatment or lack of treatment.
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Measuring Treatment Effects
Finally, we compute the treatment effects:
● Descriptive statistics:
○ Effect on low value care (LVC): Pr(demand | LVC, ordinary contract) - Pr(demand | LVC, MCM)
○ Effect on high value care (HVC): Pr(demand | HVC, ordinary contract) - Pr(demand | HVC,
MCM)
● Non-parametric tests (e.g. Mann-Whitney Test, Friedman Test)
● Regression based on dataset of decisions where decisions are assigned to an individual
which is assigned to a contract with i = individual, j = condition, and X = controls:
○ Demandij = b0 + b1*HVCj + b2*treati + b3*treati:HVCj + Xij (link function)
○ b2, b3 denote treatment effects on low-value care and high-value care respectively
○ Need to cluster errors at individual level (non-independent observations)

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Appendix

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Illustration of Experiment

Standard Contract MCM Contract

b | treatment c b| no treatment b | treatment c b| no treatment

Condition A 5, with p = 0.8 5 0, with p = 0.95 5, with p = 0.8 10 0, with p = 0.95

(low-value 0, with 0 = 0.2 -1, with p = 0.05 0, with 0 = 0.2 -1, with p = 0.05
care)

Condition B 15, with p = 0.95 5 0, with 0 = 0.05 15, with p = 0.95 10 0, with 0 = 0.05
(high-value 0, with 0 = 0.05 -3, with p = 0.95 0, with 0 = 0.05 -3, with p = 0.95
care)

Notes:
● Condition A: Condition where care is not needed (low-value care). Condition B: Condition where care is needed (high-value care, negative health impact expected in absence of treatment).
● This is an illustration. Actual experiment contains n conditions with different benefits in case of treatment or lack of treatment.

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Annotated Table of References
Buntin et al. (2006). Consumer-Directed Health Care: Early Evidence About Effects On Cost And Quality. Health Affairs, 25(Supplement 1), W516–W530. https://doi.org/10.1377/hlthaff.25.w516
● This empirical study provides insights into effects of consumer-directed health care on costs and quality of care.
● Most importantly, the study provides evidence of both appropriate and inappropriate changes in demand.

Fink et al. (2021). Learn or react? An experimental study of preventive health decision making. Experimental Economics, 24(1), 206–237. https://doi.org/10.1007/s10683-020-09668-6
● Closely related research where individuals are confronted with task to decide whether to demand preventive care or not
● Part 1: Theoretical model with respect to choice to demand preventive care with unknown benefits and known costs (similar to present context)
● Part 2: Incentivized lab experiment to test the model, where monetary reward of individual is a function of health outcomes (stochastic but depending on prevention), and costs induced

Fischer et al. (2014). Koordinationsbedarf leistungsintensiver Patienten (link)

● Empirical study with valuable background regarding manged care models in Switzerland
● Evidence that managed care models reduce demand for low-value care (for example, frequency of screenings, demand for “Bagatellerkrankungen”, or demand for specific types of drugs)
● Measurable differences between types of MCMs

Gneezy, U., Potters, J., 1997. An experiment on risk taking and evaluation periods. Quarterly Journal of Economics 112 (2), 631–645.
● Suggestions of a method for elicitation of risk preferences in a context of financial incentives.

Grossman, M. (1972). The Demand for Health: A Theoretical and Empirical Investigation. Columbia University Press. https://doi.org/10.7312/gros17900
● Introduces what became known as the Grossman model (theoretical foundation for individual decision making with respect to investments in health and decision to demand health)
● In the model, health is considered both a direct component of an individual’s utility function and an indirect component that provides time for activities.

Phelps, Charles E. "Demand for reimbursement insurance." In The role of health insurance in the health services sector, pp. 115-162. NBER, 1976.
● Extension of the Grossman model introducing uncertainty into the individual’s decision-making process
● Similar to Grossman (1972) health enters again directly an individual’s utility function and health is a function of demand for health care

Pohlmeier, W., & Ulrich, V. (1995). An Econometric Model of the Two-Part Decisionmaking Process in the Demand for Health Care. The Journal of Human Resources, 30(2), 339–361. https://doi.org/10.2307/146123
● This paper provides an econometric model for the decision-making process to contact a doctor and how often to contact a doctor.
● It takes into account not only the individual’s decision, but also that of other decision-makers that are part of the process.

Reid et al. (2017). Impact of Consumer-Directed Health Plans on Low-Value Healthcare. The American Journal of Managed Care, 23(12), 741–748.
● Using a DID-design (arguably even DIDID), this paper investigates how consumer-directed plans affect demand for 26 examples of low-value care (unclear or no clinical benefit).
● Results reveal no impact of MCMs on demand for low-value care, while overall demand declines (this might even signal a relative increase in demand for low-value care!).

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