What is the relationship between the competition level among product or service providers and the quality of the product or service. On the one hand you might think that more competition means the vendors try harder to stand out by having a better quality product. But on the other hand, less competition might mean more profits and more money to be spent making the product better. A study in Health Services Research examines this question in the context of Medicare Advantage plans. (HSR Article) These plans generally compete along dimensions including the premium charged to beneficiaries, cost-sharing features, the number and type of benefits beyond the core Medicare benefits they are required to provide, network composition and possibly quality, whatever that means to Medicare beneficiaries. CMS tries to assess quality of an MA plan by a set of measures which result in a Star rating. These measures include patient satisfaction, care process measures and some actual outcomes. For most MA plans, which don’t employ, but rather contract with, providers, the ability to influence the quality of care delivered may be minimal. But theoretically plans in concentrated markets may have more leverage to encourage providers to improve their quality, although that may depend on the level of concentration in provider markets, which tends to be very high. Plans with higher ratings get paid more by CMS.
Unfortunately, the data used in the study dates to 2011. So much has occurred in the MA market since then that I wonder about the relevance of the study. Some of the descriptive statistics do run until 2017. For example, through that date, Medicare Advantage markets at the county level remain highly concentrated, with over 90% meeting that designation. While beneficiaries often are said to have a choice of multiple plans, that is because any one insurer typically offers several plans with different premium levels and benefits in the same county. Premium levels as reported from 2011 were relatively high compared to what they are today, when zero premium plans have become very common. The average premium in the study was $46, by contrast. In that year 42% of plans had four star or higher ratings, but only 35% met that ranking on clinical process of care measures, which are better markers for actual quality. Markets with higher levels of concentration were associated with a greater likelihood of a plan having a higher quality score overall, but not associated with higher clinical process of care scores. In addition, as you would expect, plans in more concentrated markets had higher premiums. For both high quality and low quality plans, market concentration was associated with premium level but the effect was stronger for high quality plans. In other words, a high quality plan in a highly concentrated market was more likely to have higher premiums.
While the authors interpret the results as indicating that plans with market power select higher quality providers or negotiate to get them to deliver better care, I don’t agree. I think the results suggest that beneficiaries are likely swayed by marketing to perceive a plan as high quality and to give it high satisfaction scores. Plans in markets with less competition almost certainly have higher profits and use some of those to do more marketing. And people just have less choice, so they might as well say they are happy with what they have. This study needs to be updated to current times and to include marketing spending in its analysis.