Penny-wise and pound-foolish: how increasing payments for ambulatory care grows inpatient admissions

Did you ever play the whac-a-mole game? As Wikipedia describes it,

"A typical Whac-A-Mole machine consists of a large, waist-level cabinet with five holes in its top and a large, soft, black mallet. Each hole contains a single plastic mole and the machinery necessary to move it up and down. Once the game starts, the moles will begin to pop up from their holes at random. The object of the game is to force the individual moles back into their holes by hitting them directly on the head with the mallet, thereby adding to the player's score."

Health care financing and delivery in the U.S. behave as a whac-a-mole game. When one line item of reimbursement -- say, payments to ambulatory care providers -- are reduced, utilization in another care segment increases.

This is the situation found in an important special article, Increased Ambulatory Care Copayments and Hospitalizations among the Elderly in the New England Journal of Medicine dated January 28, 2010.

Dr. Trivedi, et. al., compared changes in utilization in outpatient and inpatient care among Medicare enrollees that increased copayments for ambulatory care. The researchers compared a controlled utilization between enrollees who had increased ambulatory care copayments versus those whose payments did not change.

The outcome: increasing copaymetns for ambulatory care services resulted in fewer outpatient visits by Medicare enrollees, and increasing inpatient admissions to hospitals.

Health Populi's Hot Points: The conclusion we draw is that raising cost-sharing for ambulatory care can have adverse consequences -- and ironically, drive health spending up.

This study speaks to the important art of value-based benefit design: art and, of course, actuarial science, too. The U.S. health system has a long history of whac-a-mole economics: when inpatient payment rates got cut for hospitals, for example, hospitals rushed to build ambulatory surgery centers and outpatient rehab facilities.

In the meantime, whac-a-mole will continue until those who design health plans recognize the nature of incentives and their consequences. For more on value-based benefit designs, check out Dr. David Hom's work at Healthcare Innovation as well as Health Affairs' article by Michael Chernew et. al. on the evidence of value-based plan design.