HEALTH CARE POLICY AND REGULATION Topics in Regulatory Economics and Policy Series Michael A. Crew, Editor School of Management-Rutgers University Newark, New Jersey, U.S.A. Previously published books in the series: Rowley, C., R. Tollison, and G. Tullock: PoliticalEconomyofRen~Seekmg Frantz, R.: X-Efficiency: Theory, Evidence and Applications Crew, M.: Deregulation and Diversification of Utilities Shogren, J.: The Political Economy of Govemment Regulation Hillman, J., and R. Braeutigam: Price Level Regulation for Diversified Public Utilities Einhorn, M.: Price Caps and Incentive Regulation in Telecommunications Crew, M.: Competition and the Regulation of Utilities Crew, M., and P. Kleindorfer: Competition and Innovation in Postal Services Thompson, H.: Regulatory Finance: Financial Foundations of Rate of Return Regulation Crew, M.: Economic Innovations in Public Utility Regulation Crew, M., and P. Kleindorfer: The Economics of Postal Service Crew, M., and P. Kleindorfer: Regulation and the Nature of Postal and Delivery Services Oren, S., and S. Steven: Service Opportunities for Electric Utilities: Creating Differentiated Products Kolbe, A.L., W.B. Tye, and S.C. Myers: Regulatory Risk: Economic Principles andApplications to Natrual Gas Pipelines Pechman, C.: Regulating Power: The Economics of Electricity in the Information Age Gordon, R.K.: Regulation and Economic Analysis: ACritique over Two Centuries Blackmon, G.: Incentive Regulation and The Regulation of Incentives Crew, M.A.: Incentive Regulation for Public Utilities HEALT H CARE POLICY AND REGULATION edited by Thomas A. Abbott, 111 Graduate School of Management Rutgers University Newark, New Jersey, U.S.A. Springer Science+Business Media, LLC ISBN 978-1-4613-5932-6 ISBN 978-1-4615-2219-5 (eBook) DOI 10.1007/978-1-4615-2219-5 Library of Congress Cataloging-in-Publication Data A C.I.P. Catalogue record for this book is available from the Library of Congress. Copyright<!:> 1995 by Springer Science+Business Media New York Originally published by Kluwer Academic Publishers in 1995 Softcover reprint ofthe hardcover 1st edition 1995 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, mechanical, photo-copying, recording, or otherwise, without the prior written permission of the publisher, Springer Science+Business Media, LLC. Printed on acid-free paper. CONTENTS Authors and Discussants vii Preface and Acknowledgements ix 1 Introduction Thomas A. Abbott, III 1 PART I-HEALTH CARE REFORM 11 2 Lessons from Public Utility Regulation for the 13 Economic Regulation of Health Care Markets: An Overview Thomas A. Abbott, III, and Michael A. Crew Comments 38 Warren Greenberg Comments 41 Geoffrey Liss 3 Regulatory Strategies Under Managed Competition 45 Health Care Reforms Mark Schlesinger Comments 73 John Ciccone 4 Health Care Cost Containment in Connecticut 81 L. Spencer Cain 5 Health Care Reform in New Jersey 93 Pamela S. Dickson 6 Health Security Act: Summary And Impact 97 Ronald Rouse, Philip Vernon, Linda Stackman, and Keith Servis v vi HEALTH CARE POLICY AND REGULAnON PART II-PRICE REGULATION 103 7 Regulating Pharmaceutical Prices 105 Thomas A. Abbott, III Comments 135 Alison Keith 8 Hospital Price Regulation: Evidence and Implications 143 for Health Care Reform Jack Hadley 9 Paying Physicians as Agents: Fee-For-Service, 163 Caption, Or Hybrids? Mark V. Pauly Comments 175 Beatrice E. Manning Comments 177 David W. Lee PART III-QUALITY REGULATION 181 10 Medical Practice Guidelines and the Efficient 183 Allocation of Resources John A. Rizzo and Jody L. Sindelar Comments 200 Kathleen A. Weis 11 Contending Views of Quality Management in Health 205 Care: Implications for Competition and Regulation David Blumenthal and Richard Bohmer Comments 222 Malcolm G. Coblentz Comments 224 Martin Gaynor 12 Measuring and Improving Quality in Health Care 231 Mark R. Chassin Comments 236 James F. Burgess, Jr. Comments 240 Paul M. Schyve Glossary 243 AUTHORS AND DISCUSSANTS Thomas A. Abbott, HI, Assistant Professor, Rutgers University Robert Barnett, Assistant Director, Office of Health Systems Management, Division of Health Care Financing, New York Department of Health P. George Benson, Dean, Rutgers University David Blumenthal, MD, Massachusetts General Hospital Richard Bohmer, MD, Clinical Director of Quality Improvement, Massachusetts General Hospital James Burgess, Economist, Department of Veterans Affairs L. Spencer Cain, Chief Analyst, Connecticut Legislative Program Review and Investigations Committee Mark Chassin, MD, Commissioner, New York Department of Health John Ciccone, MD, President, Health Partnership for Quality Reform Malcolm Coblentz, MD, St. Barnabas Medical Center Michael A. Crew, Professor and Chair, Department of Finance-Economics, Rutgers University Pamela S. Dickson, Assistant Commissioner, New Jersey Department of Health Martin Gaynor, Assistant Professor, John Hopkins University Gerry Goodrich, President and CEO, Irvington General Hospital Warren Greenberg, Professor, George Washington University Joseph Guy, Director, Bureau ofMedicaid Management Information Systems, New York Department of Health Jack Hadley, Director, Institute for Health Care Research and Policy, Georgetown University Michael Hoffman, Director of Research, Commission on Hospitals and Health Care Alison Keith, Director, Economic Analysis, Pfizer Pharmaceuticals vii viii HEALTH CARE POLICY AND REGULAnON AI K1evorick, Deputy Dean, Cowles Foundation, Yale University David Lee, Economist, American Medical Association Geoffrey P. Liss, Executive Secretary, New Jersey State Department of Health Beatrice Manning, MD, New Jersey Department of Health Mark V. Pauly, Professor, University of Pennslyvania John Rizzo, Assistant Professor of Public Health, Yale University Mark Schlesinger, Associate Professor for Public Health, Yale University and Rutgers University Paul Schyve, MD, Senior Vice President, Joint Commission on Accreditation of Health Care Organizations W. Robert Simons, Director, PRACON Consulting Services Jody Sindelar, Associate Professor, Yale University Kathleen Weis, Senior Epidemiologist, Agency For Health Care Policy and Research PREFACE AND ACKNOWLEDGEMENTS This book is the result of three one-day Health Care Policy and Regulation Workshops held at Rutgers-The State University ofNew Jersey during the Spring of 1994 and sponsored by The Robert Wood Johnson Foundation. These work- shops brought together over 70 academics, government health care regulators and administrators, health care providers, and other health industry representatives to discuss issues involved in health care reform and regulation. Although there were some disagreements about how best to accomplish it, everyone at the workshops was interested in putting aside self interest and improving health care delivery in America. These discussions yielded many new insights into the complex issues involved in reforming health care delivery and increased everyone's awareness of the struggles ahead of us. The views expressed in the following chapters and comments are those of the authors and do not necessarily reflect those of the sponsor or the author's affiliated institutions. There are a large number of people who played important roles in putting together these workshops and this volume. In particular, I would like to thank the members of the organizing committee, without whom's help the Health Care Policy and RegulationWorkshop would have remained just an idea in the back ofmy head. In particular, I would like to thank Joel Cantor of The Robert Wood Johnson Foundation; Jody Sindelar, Donna Diers, and Bradford Gray of the Department of Epidemiology and Public Health, Yale University; Robert Barnett ofthe New York Department of Health; Jack Croweak of Blue Cross-Blue Shield of Connecticut; Kenneth Raske of the Greater New York Hospital Association; Nancy Wolff of the Institute for Health, Health Care Policy, and Aging Research at Rutgers University; and Michael Crew, Director of the Center for Research in Regulated Industries at Rutgers University. Many thanks are also owed to the distinguished speakers and discussants who took part in these workshops. A complete list can be found on pages vii-viii. Without their efforts and cooperation, neither the workshops nor this book would have been possible. I would especially like to thank Michael Crew, Director, Linda Brennan, Admin- istrative Assistant, and Kathleen Rutledge, Senior Clerk, at the Center for Research in Regulated Industries. Without the Center's full support, the task organizing the workshops would have been impossible. Not only did Linda provide excellent editorial assistance, but she also prepared the final camera-ready manuscript which ix x HEALTH CARE POLICY AND REGULAnON made speedy publication possible. Kathy's expert administrative assistance made it possible to go from the concept of the workshop to the first meeting in less than three months. Moreover, it was her oversight that kept the workshops running smoothly despite the problems of inclement weather and missing speakers. The usual disclaimers apply, none of the individuals named here is responsible for any errors. The views expressed are the views of the authors and not of their companies or affiliations or of the sponsor. THOMAS A. ABBOTT, III