• What fragmented financing does

    Along with John Gardner, my colleague and occasional TIE blogger Steve Pizer published “Is Fragmented Financing Bad for Your Health?” in Inquiry. The results are worth exploring, and so I shall.

    Let’s get one thing straight: what’s “fragmented financing”? It occurs when an individual’s care is financed by multiple payers within a short span of time. This is a fairly common experience in the US. For example, Steve and John cite work that shows that 17% of privately insured Americans changed plans in a two year span in the late 1990s. I cited similar stats from another paper a couple of weeks ago.

    Fine, financing is “fragmented”. People switch plans. Does it matter? Turns out, it does. Steve and John studied a population of low-income or disabled veterans who have access to care provided by the Veterans Health Administration (VA) and Medicare. They used an instrumental variables approach (instrument: distance to a VA facility) to estimate the causal effect of fragmented financing on ambulatory care sensitive condition (ACSC) hospitalizations. ACSC hospitalizations are those that are more likely than others to be avoidable with appropriate ambulatory care. More ACSC hospitalizations is an indicator that less expensive, preventive or disease management care has not been provided appropriately or sufficiently.

    We find that an increase of one standard deviation in the fragmentation of financing increases the probability of ACSC hospitalization by 21%. This effect is comparable in size to the effects of major chronic diseases such as arrhythmia, anemia, or peripheral vascular disease. […]

    If the average degree of fragmentation in our sample was reduced by one standard deviation, the average six-month probability of ACSC hospitalization would have declined from 4.3% to 3.2%, which translates into $96 per person per year ($48 per six-month period). This is equivalent to a 3% reduction in total Medicare hospital spending per beneficiary in 2000, a financially significant effect, suggesting that fragmented financing has substantial costs that have not previously been considered.

    I like that they put the results in the context of acquiring a major chronic disease. If you are otherwise like the those in the population studied and you receive care that is fragmented to the tune of one standard deviation above the mean it’s as if you acquired arrhythmia, anemia, or peripheral vascular disease (in terms of ASCS hospitalizations). Because of that, you’re costing the system more. None of this would be your fault. It’s baked in the cake.

    If fragmented financing matters–and the results of Steve’s and John’s paper suggests it does–why does it matter? The hypothesis they offer is that it degrades the quality of care due to the fragmentation of information.

    Short or discontinuous relationships with providers could lead to lower quality of care because the provider’s access to information about the patient’s health is more limited than it would be in long, continuous relationships. When access to information is difficult, physicians may be more likely to choose treatments based on norms or past experience with other patients instead of treatments optimally tailored to an individual’s particular condition and history.

    When an individual switches financing, they often switch providers too. Studies, cited by the author, have found that changing from one HMO to another results in changes in usual sources of care for over one-quarter of individuals and changes in primary care physician for half of individuals.

    The loss of continuity of care associated with the fragmentation of the US health system is not enhancing our health. This is even true for the sample of individuals Steve and John studied, with access to the two large single-payer sources of care in the US: the VA and Medicare. Even that degree of fragmentation may be too much for optimal health.


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    • Having less contact with a physician might lead to poor information as the article suggest and might also undermine the patients willingness to follow the physician’s advice.