The economics of information in the health care market: Managed care and utilization constraints

Managed care organizations are shifting to less restrictive health plan options with fewer utilization constraints in an effort to increase patient and health care provider satisfaction and quality of care. The effect of increasing clinical autonomy on health care utilization and expenditures, however, is not yet known. This research develops a theoretical model and analytical framework to study patterns of utilization in response to changes in incentives that effectively relax utilization constraints.;The theoretical model furthers research on provider behavior by extending contemporary models of fee constraints to include non-pecuniary incentives. The theoretical predictions for a two-service health care model identify characteristics of services most likely to change following an increase in clinical autonomy. Changes in utilization depend on a service's profit margin, historical patterns of over-utilization, and the effect of the increase in clinical autonomy on the likelihood a payer detects unnecessary utilization.;The theoretical framework is applied to a unique data set to examine whether utilization changes in response to increases in clinical autonomy are consistent with rational economic behavior. Legal changes to the California workers' compensation system, which effectively increased an individual health care provider's clinical autonomy, are used to test the model predictions. Data include 90,000 closed back injury claims, with injuries occurring between 1993 and 1999. A unique method of quantifying utilization changes is used, where both changes in discrete methods of treatment and changes in service intensity are quantified. A multinomial logit model is used to estimate the changes in the probability that a patient receives a particular method of treatment. Changes in the intensity of utilization are studied using a generalized method of moments approach.;Results are consistent with the model predictions, suggesting that utilization responds to economic incentives. Efforts to increase provider autonomy are likely to have unintended and costly consequences, unless other incentives are used to control unnecessary utilization. If the end product of the managed care backlash is increased physician autonomy, results suggest that utilization and expenditures are likely to increase, due to both more costly methods of treatment and a higher intensity of utilization.