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Understanding needs and concerns of the elderly regarding Medicare health maintenance organizations.

Medicare beneficiaries, who currently receive health care under a fee-for-service system, present new challenges and opportunities for Medicare-HMOs. Part of the challenge lies in discerning major need dimensions underlying the elderly's choice between standard Medicare and a Medicare-HMO. Although Medicare-HMOs have special features likely to be particularly beneficial to the elderly, they are not greeted without some disquietude. The paper focuses on identifying the major need dimensions and concerns of the elderly in choosing a Medicare-HMO over the traditional fee-for-service Medicare system.

Today's health care business environment requires that planners and management decision makers fully understand and effectively respond to the significant changes occurring in the health care markets. One of the most widely recognized and pervasive of these changes is the aging of the population. There is a growing concern in the nation regarding meeting the future health care needs created by an aging population. The elderly population, defined as those who are 65 years of age and over (Gilly and Zeithaml 1985; Roedder-John and Cole 1986), is growing twice as fast as the general population and is projected to account for over 21 percent of the U.S. population by the year 2030 (Lumpkin and Hunt 1989).

Currently, an estimated 29 percent of the U.S. health care expenditures are devoted to the elderly. The Medicare program, the U.S.'s largest single health insurance program, serves over 30 million elderly and disabled citizens. Spotts and Schewe, for example, pointed out that "Medicare payments have continued to increase as part of the elderly's total health care expenditures and now constitute the source of 45 percent of the total payments for persons over 65. Hospital costs account for nearly half (45.2 percent) of health care expenses per person" (1989, 36).

With the changing demographic structure of the population and the burgeoning cost of health care for the elderly, health care planners have begun to take a closer look at alternative delivery systems such as health care maintenance organizations (HMOs). HMOs offer a comprehensive package of health care benefits for a fixed premium and usually feature some limitations on consumers' choice of providers. In addition, providers of care are usually placed at some economic risk, and thus, face incentives to reduce "unnecessary" services. The U.S. government has nurtured the development of HMOs through the initial provision of grants and loans and the passage of a law that compelled most employers to include HMOs (if available) among the health care options offered to employees.

HMOs integrate several cost containment measures such as utilization review, pre-admission authorization, outpatient surgery, and preventive care under one institutional entity. The presence of HMOs as a significant force in the market place has been expected to stimulate competition among health care providers and exert a restraining influence on overall health care premiums. Empirical evidence points to the success of HMOs in reducing costs of in-patient care, especially through lowering hospitalization rates (GHAA 1990; Luft 1981; Manning, Leibowitz, Goldberg et al. 1984; Schlesinger 1985).

With growing support from employers, labor unions, and the federal government, enrollments in HMOs increased at an accelerating pace among the general employed population. In 1980, for example, HMOs enrolled 9.1 million persons with a market penetration of 4.0 percent. In comparison, HMO enrollments in 1990 were estimated at 33.1 million, and HMO market penetration was 13.3 percent (Interstudy Edge 1980, 1990).

MEDICARE HMOs

The passage of the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 (Section 114) enabled the development of risk-based prospective payment health plans for the elderly, commonly referred to as Medicare-HMOs (Iglehart 1985). Prior to this legislation, HMOs largely ignored enrolling Medicare beneficiaries. Among the primary reasons were the Health Care Financing Administration's (HCFA) methods of reimbursing HMOs for geriatric care, which were based on "reasonable costs" in retrospective determination of costs (Bonanno and Wetle 1984). These methods were inconsistent with the overall HMO philosophy and caused considerable uncertainty about the reimbursement levels received by them. The new legislation offered incentives for HMOs to enroll Medicare beneficiaries and also had built-in provisions for reduction of Medicare expenditures. Under HCFA's Medicare Competition Demonstration Program initiated in 1982, a limited number of HMOs began to experiment with prospective-payment-based risk contracting for Medicare services. Based on the experience gained through these demonstration projects, the final HCFA regulations to permit all qualified HMOs to enter the Medicare market were prepared and published in 1985. Since then, a growing number of HMOs have begun to provide health care services to the aged (Adamache and Rossiter 1986; Bonanno and Wetle 1984; Gillick 1987; Iglehart 1987; McMillan, Lubitz, and Russell 1987). In 1990, an estimated 1.3 million Medicare beneficiaries received their services from Medicare-HMOs; this figure represented approximately 4.1 percent of the Medicare population (Office of Prepaid Health Care 1990), substantially less than the 13.3 percent market penetration of HMOs among the general employed population. The success of Medicare-HMOs depends on whether they can convince the elderly to switch from the standard-fee-for-service arrangement, under which they currently receive health care, to a prepaid health plan. An understanding of the dimensions influencing the elderly's decision to choose Medicare-HMOs becomes central to developing effective marketing strategies which will facilitate the diffusion of health care delivery innovations among the elderly.

FOCUS OF THE STUDY

Traditional HMOs targeting the employed population are characterized by group marketing. Medicare HMO marketing is focused primarily on individuals. Marketing of a prepaid health plan to Medicare beneficiaries thus presents some new challenges to HMOs and requires research sophistication. In particular, understanding consumer behavior of Medicare beneficiaries becomes critical in developing marketing strategies. Due to the relative newness of the Medicare-HMO concept, there is a paucity of studies which focus on identification of the major dimensions of needs and concerns of the elderly in making a health care choice.

The purpose of this article is to investigate how two groups of the elderly, those who would prefer to continue with the standard Medicare system and those who would prefer to switch to a Medicare-HMO, differ in regard to their health care decision making. More specifically, the objectives of the study are to: (1) determine the major underlying need dimensions that potentially

influence the choice between the standard (fee-for-service)

Medicare system and a Medicare-HMO; (2) identify the criteria which are significant in distinguishing between

those who prefer the standard Medicare option and those

who prefer the Medicare-HMO alternative; and (3) identify major concerns the elderly have regarding switching to a

Medicare-HMO.

The remainder of the article is organized as follows. The next section focuses on research design, followed by an analysis and the findings. Concerns of the elderly regarding Medicare-HMOs are delineated. Finally, conclusions and implications are presented.

RESEARCH DESIGN

The initial task was to identify factors the elderly deem important in selecting health care alternatives--standard Medicare and Medicare-HMOs. This was accomplished by an extensive literature review and an exploratory study with the elderly, physicians, and hospital administrators. Based on this effort, a list of 15 attributes was developed (Table 1).

The questionnaire was formulated and tested. Personal interviews were conducted in a variety of settings, including senior recreational and social centers, meal centers, and residential complexes for the elderly. The personal interviews lasted approximately 35 minutes each and were conducted by experienced professionals of a local marketing research firm. Respondents were offered a monetary incentive of five dollars to participate in the study.

Personal interviews generated a data base of 286 Medicare users age 65 and over in the Standard Metropolitan Statistical Area (SMSA). Respondents were asked to rate the importance of each of the possible attributes (Table 1) on a four-point scale, ranging from "1" (very important), to "4" (not important). Each respondent was asked to provide information on whether they would continue with the current Medicare program or would like to switch to a Medicare-HMO option. The instrument also had questions pertaining to demographic characteristics. After excluding questionnaires that did not provide information imperative for purposes of the study, 254 respondents were included in the final analysis.

ANALYSIS AND FINDINGS

In the initial stages of the analysis, descriptive measures of the data were elicited. Nearly 40 percent of the respondents indicated that they would prefer to switch to a Medicare-HMO and the remaining 60 percent stated that they would prefer to continue with the standard Medicare system. The degree of importance of the various decision considerations of the elderly who indicated that they were likely to switch to a Medicare-HMO (H) was then compared with those who continued with the standard Medicare program (S). Table 1 presents useful information regarding the relative importance of the factors that may influence the elderly's choice of a Medicare-HMO. Potential Medicare-HMO enrollees placed relatively more importance on keeping their out-of-pocket medical expenses low, knowing those expense levels in advance, eliminating claims-related paperwork, having access to all medical services needed in one location, having comprehensive coverage of all health care services needed, and having access to doctors highly competent in the medical problems of the elderly. Those who intend to stay with the standard Medicare system placed relatively more emphasis on the continuity of their relationship with current physicians and use of the same hospital.

Clearly the above analysis suggests differences in emphasis placed in the various attributes that the elderly use in assessing health care choice alternatives. Identification of these differences in the evaluation criteria across two decision groups (i.e., those who choose to continue with the Medicare system and those who would like to switch to a Medicare-HMO) is important when one tries to understand the choice behavior of Medicare beneficiaries. Here, the elderly's decision criteria are based on the evaluation of all 15 attributes presented in Table 1. However, one would not expect that individuals use a large array of attributes to assess the choice alternatives. They are likely to organize their perceptions and reduce the number of attributes into a few evaluative criteria.

The notion that when individuals are faced with a choice decision they tend to simplify judgments by reducing the set of attributes into a few dimensions, to prevent cognitive burden and information overload, is widely acknowledged (Miller 1956). Hauser and Urban (1977) pointed out that the idea is not that an individual has an explicit method to perform such a reduction, but that the underlying choice behavior can be explicated by such a process. Such reduction processes assist policy makers in developing creative marketing strategies by visualizing the market structure along a few dimensions.

To reduce the set of attributes presented in Table 1 into a few meaningful dimensions, several different data reduction techniques could be employed. Hauser and Koppelman (1979), in their empirical study, espoused that the factor analysis procedure is superior to nonmetric multidimensional scaling from the standpoint of predictive ability, interpretability, and ease of use.

To identify and interpret the major dimensions underlying the decision process, factor analysis with a varimax rotation procedure was employed in the present study. A combination of the Scree test and the eigenvalue rule was used to determine the number of factors. The Scree test, proposed by Cattell (1966), is a result of the observation that factor variance levels off when factors are largely measuring random error. The number of factors are plotted against the proportion of total variance they extract. The eigenvalue rule (eigenvalue greater than or equal to 1) and the Scree test yielded four major dimensions (Table 2).

Based on factor loadings greater than .40 (Hair, Anderson, and Tatham 1987; Harman 1976) and the relationships among the heavy loaders, the major need dimensions of the elderly with regard to the Medicare-HMO decision were labeled Quality, Value, Continuity, and Convenience. It is interesting to note that in a study dealing with HMOs for the general employed population, Hauser and Urban (1977), using the factor analysis approach obtained four major dimensions--Quality, Value, Personalness, and Convenience--characterizing the decision process used by individuals in evaluating the alternative health plans. "Personalness," which reflected a friendly atmosphere with privacy and no bureaucratic hassles in Hauser and Urban's study, appears here as an integral part of the quality dimension and not as a separate factor. On the other hand, "continuity" of care emerges as a distinct factor in this study and appears to have a special relevance to the elderly health care consumers. A description of each of the four dimensions in this study is presented.

Quality

From the medical profession's view, quality has been a complex multidimensional concept embracing not only the traditional measures of intellectual competence and clinical techniques, but also social and emotional aspects of the provider. Luft (1980) noted that prepaid group practices often exhibit higher quality than do the average fee-for-service providers of health care for the general population. This was corroborated by Cunningham and Williamson (1980), who indicated that there is some suggestion of higher quality in HMOs. Others, including Nobrega et al (1982), found some variations in the use of hospitals. Luft (1980) cautioned that while some HMOs tend to have a higher percentage of trained physicians and are more likely to use accredited hospitals, other HMOs have not been able to obtain ready access to "better" hospitals.

Interestingly, some experts consider HMOs to be generally deficient in the special elements of geriatric medicine. Bates and Brown observed: "The providers may be inexperienced in the complex process of sorting the abnormal from the normal in a geriatric patient or detecting important symptoms given the "noise" created by multiple conditions" (1988, 491). This is more likely in the case of staff and group HMOs than in Independent Practice Association (IPA) and network models. It is important that Medicare-HMOs adopt the role of "consumer purchasing agents" for the elderly in selecting staff or developing provider networks and display special responsiveness to meeting the unique medical needs of the elderly (e.g., physicians trained in geriatric medical problems and coordinated care appropriate for multiple ailments). Such a measure may partially compensate for the disadvantage of possible disruption of continuity of provider relationship for the elderly who wish to switch to a Medicare-HMO from fee-for-service Medicare.

For Medicare beneficiaries, the quality factor appeared important in considering a Medicare-HMO option. This factor (Table 2) is correlated with emergency care access, warm and personal medical care, good health care when out-of-state, access to high quality hospitals, and access to doctors highly competent in the medical problems of the elderly.

As shown in Table 1, potential Medicare-HMO enrollees placed relatively more importance on access to doctors highly competent in geriatric medical problems and the ease of getting care in emergencies. Note that both groups attached relatively equal importance to such attributes as being able to use a high quality hospital in the area and to obtain help in preventing medical problems before they occur.

Value

Value involved an assessment of benefits coverage in relation to costs" incurred in terms of money and effort. This factor, which manifests high loadings for comprehensive coverage of health care services and keeping out-of-pocket expenses low, as well as predictability of out-of-pocket costs and elimination of paper work, appeared as an important evaluating criterion in health plan choices. Berki and Ashcraft (1980), who proposed a framework for the analysis of HMO enrollment decisions for the general population, specified insurance characteristics as important determinants influencing choice. These characteristics include benefits package, premium costs to the enrollee, and cost-sharing provisions.

The study findings clearly suggest the importance of economic value (cost/benefit) considerations as factors of determinant influence in the elderly's decision to enroll in a Medicare-HMO. This may characterize the decision process used by elderly consumers who attempt to evaluate the differential benefits of prepaid versus standard fee-for-service health care alternatives.

Continuity

Continuity of care (Table 2) showed an evaluation of alternative health care plans in terms of the ability to continue with the respondent's current physician and hospital. In their conceptual framework for studying HMO enrollment behavior in the general population, Berki and Ashcraft stated, "the choice of HMOs, in which enrollment necessitates the severing of an existing satisfactory patient-physician relationship, other things being constant, is not likely. On the other hand, if enrollment in a health care plan provides for retaining an already existing physician-patient relationship, the enrollment (other things being constant) is more likely" (1980, 128). Other interesting insights regarding the role of continuity in relation to financial aspects can be gleaned from previous findings. Luft (1980), for example, noted that the role of the patient-physician relationship in the choice of a health plan may be less important for people choosing prepaid groups than are financial incentives.

The present study reveals that the elderly population's choice of a Medicare-HMO vis-a-vis the standard Medicare is also influenced by the continuity dimension. It may be fair to assert that continuity of patient-physician relationship is more important for the elderly than for younger groups (Hibbard and Pope 1986). In fact the reasons lie in the medical treatment approach appropriate for geriatric care. Gillick stated,

Older patients frequently have chronic problems that can become acutely

exacerbated, as well as many coexisting complex illness that are not easy for

someone unfamiliar with the patient to handle optimally. A key aspect in the

care for the elderly is the development of a long-term program and the coordination

of supportive services. Lack of continuity in providers tends to

foster patient-initiated medical care that is spurred by acute problems, and

does not tend to promote long-term care (1987, 141). In light of the special importance of continuity of patient-physician relationship in the choice of a health care delivery system by the elderly, strong compensatory advantages have to be offered to induce switching from fee-for-service to Medicare-HMOs.

Convenience

"Convenience" reflected access to the hospital, distance to the doctor's office, waiting time, and availability of all services in one location (Table 2). Evidence gleaned from studies dealing with HMO enrollment for the general population (Berki and Ashcraft 1980) indicated that access attributes are important decision factors, although they are consistently ranked below expected lower costs and comprehensive benefits. Other access attributes related to easier physical access or convenience have also been investigated and found to be important for the general population in choosing an HMO (Gaus 1971; Scitorsky, McCall, and Benham 1978). It appears from the present findings that the elderly also deem convenience as an important dimension in making health care choices. Note that in a study which examined determinants of utilization among enrollees over the age of 65 as compared with younger enrollees, Hibbard and Pope (1986) found that the elderly were more sensitive to travel time while younger enrollees were more affected by time spent waiting in doctors' offices.

Importance of the convenience factor also indirectly recognizes the dependence of the elderly on family and social support systems in accessing medical care providers. A health care delivery system which does not fare well on the convenience factor could strain the elderly's support system as well.

Discriminating Factors

Discriminant analysis was used to test the multivariate ability of the four factors to classify individuals as those who prefer the standard Medicare (fee-for-service) system and those who would switch to a Medicare-HMO. Discriminant analysis examines the difference between two (or more) mutually exclusive groups (the dependent variable) as a function of a set of independent variables or factors such as those discussed. The dichotomous nature of the dependent variable (switch versus stay with the current program) requires a two-way discriminant analysis, which produces a linear function that will best discriminate between the two groups. The best discrimination is achieved by the statistical rule of maximizing between group variance (Green and Tull 1978).

Four dimensions were submitted to the discriminant analysis program; also as suggested by Morrison (1969) one-third of the sample was held out and used to validate the discriminating ability of the function derived from the larger sample. Table 3 presents summary results from the discriminant analysis between those who indicated they would stay with the standard Medicare system and their counterparts who prefer a Medicare-HMO alternative. Based on Table 3, clearly a one-group discriminant solution exists; linear discriminant analysis produced a function that was statistically significant beyond the .001 level (X.sup.2 = 34.08, d. f. = 4), thus confirming the significant difference between the two groups on four predictor variables. Further, canonical correlation (.421) denotes the relative ability of each function to separate groups; the group centroids (means) suggest a fairly high degree of separation.

Interpretation of other results in Table 3 are straightforward. The effect of each factor is determined by the absolute size and sign of the discriminant function coefficients, the larger the coefficient, the greater the discriminating power of the variable. The sign indicates that the variable makes either a positive or a negative contribution (Darden and Reynolds 1974). Contributing most to the discriminant ability was the continuity dimension. The second most important discriminating factor was value (cost/benefit) followed by quality and convenience dimensions.

In order to assess the reliability of the findings, a classification analysis was performed on the holdout sample. As noted in Table 3, four factors produced an overall predictive ability of 70 percent. In other words, 70 percent of the individuals in the holdout sample are correctly classified as to Group One or Group Two membership.

To test that the proportion of correctly classified cases was significantly different from the proportion that would be expected if the chance criterion were used, a t-statistic was computed.(1) The computed t-value (greater than two) was significant beyond the .01 level. Thus, the findings suggest a set of predictor variables that clearly differentiate elderly who indicated a preference to continue with the current Medicare program from those who prefer the Medicare-HMO option.

CONCERNS OF THE ELDERLY REGARDING MEDICARE-HMOs

Medicare-hmos are still a relatively new concept in the health care marketplace. A variety of concerns and suspicions appear to impede ready acceptance of Medicare-HMOs among the elderly. Identification of these perceived barriers would assist policy makers in developing creative measures which will increase the likelihood that more of the elderly would consider the Medicare-HMOs as an attractive health care delivery option.

In the present study, survey respondents were asked the open-ended question: "What concerns or questions do you have about joining Medicare-HMOs designed for senior citizens?" The insights derived from a content analysis of the responses revealed the following major categories of concerns the elderly have in regard to Medicare-HMOs.

Constraints on Choice of Physicians and/or Hospitals

While 24 percent of the respondents expressed concern about restrictions on the choice of a physician, ten percent indicated concerns about the choice of hospitals. Sample comments of respondents under this category were:

"Will a different doctor be seen each visit?"

" Regimentation! "

"Could I go to the Mayo Clinic if I feel they are better than the clinics here?"

Insufficient Knowledge or Lack of Understanding of HMOs

Twenty-three percent of the respondents revealed that they have inadequate knowledge and no clear understanding of how the HMO system operates. Sample comments under this category were:

"Will the HMO be easy to understand?"

"How can they do it for the same money we pay?"

"How would major surgery be handled?"

" Socialized medicine! "

"Can the decision to join be reversed?"

"How is payment arranged for specialists?" This finding is consistent with the recent study by Langwell and Hadley who pointed out that "approximately one-quarter of disenrollees state that they had disenrolled because they misunderstood one or more terms of HMO membership. . ." (1989, 70).

Quality of Care in Medicare-HMOs

Sixteen percent of respondents asked whether such HMOs will have qualified doctors and whether they provide personalized care. Sample comments were:

"Not sure that doctors are as competent (in HMOs). I think they are untrained or new doctors."

"Impersonal care."

"How can you be sure that promised care will be continued after you have committed to join?"

"No competition among HMOs."

"We will be unable to receive emergency treatment without prior permission."

Affordability and Costs

These respondents (seven percent) expressed concerns about increases in rates and hidden out-of-pocket costs despite the claims of the Medicare-HMOs to the contrary. Sample comments were:

"What will the deductibles be?"

"The unanswered questions that come up only when the bills arrive. "

"Will HMO pay greater percentage of bills and costs than Medicare?"

"Annual increases in rates."

"Out-of-state treatments."

Financial Stability and Viability in General

These elderly five percent) worried about the possibility of some HMOs folding, stranding them with no health coverage. Sample comments were:

"Some will fail as the walk-in clinics did."

"There are so many HMOs, I am concerned about some folding up."

"Could be eliminated from the HMOs, and have no coverage."

No Perceived Advantage With Medicare-HMOs

These respondents (four percent) were satisfied with the standard Medicare system and saw "no reason to start all over and create more problems with an HMO."

Many of the above concerns expressed by the elderly seem to be consistent with a study by Titus (1982) prior to the advent of TEFRA-based Medicare-HMOs. Based on interviews with 260 elderly people in Minneapolis, Titus identified barriers that impeded the elderly from considering the general HMO option. These included knowledge deficits, lack of exposure to information, general resistance to change, difficulties of integrating the "new" with old insurance patterns, and value stances that restrict the adoption of HMOs. These concerns, raised by the elderly almost a decade ago, appear to still hold and affect the elderly's consideration of a Medicare-HMO option. It seems fair to assert that the above concerns and value stances may often take precedence even when the relative advantages and benefits of a Medicare-HMO might be recognized on other dimensions as discussed.

DISCUSSION AND IMPLICATIONS

As the elderly population continues to grow, their health care needs and costs will be major policy issues. With rising health care costs of the standard fee-for-service Medicare system, Medicare-HMOs are looked upon with high expectations. However, Medicare-HOMs are still relatively new in the health care marketplace. Their survival depends fundamentally on their ability to enroll and retain a sufficiently large enough number of fee-for-service Medicare beneficiaries to achieve economies of scale and financial viability.

Medicare-HMO Marketing

In order to successfully penetrate the standard fee-for-service market, Medicare-HMOs have to carefully develop marketing strategies based on a sound understanding of the needs, concerns, and health choice behavior of elderly consumers.

The present research identifies continuity of medical care provider relationships, value, quality of health care, and convenience as four major need dimensions underlying the elderly's choice between standard Medicare and Medicare-HMOs. Continuity reflects an evaluation of alternative health care plans in terms of a beneficiary's ability to continue existing physician and hospital relationships. The value dimension involves an assessment of the benefits coverage vis-a-vis costs in terms of money and effort. The quality dimension embraces such criteria as emergency care access, access to doctors highly competent in medical problems of the elderly, warm and personal medical care, and ability to use high quality hospitals in the area. Convenience reflects access to the hospital, distance to the doctor's office, waiting times, and availability of all medical services in one location.

From the health care consumer's point of view, quality is often measured in the subjective evaluations of medical competence and availability of needed services as well as those of caring and compassion. Potential Medicare-HMO enrollees appear to place relatively high importance on access to doctors highly competent in medical problems of the elderly. The elderly's perceptions about the quality of care they receive from health care providers and responsiveness of the delivery system to their needs and concerns affect their decision to consider Medicare-HMOs. Medicare-HMOs need to reflect a total quality orientation in their offerings and communicate it adequately to elderly consumers. Finding an optimal balance between quality and cost of health care will continue to be a major issue in the 1990s and beyond, requiring an ever increasing cooperation and commitment among all players in the system--consumers, providers, insurers, governments, and businesses.

As noted in the study, economic value (cost/benefit) considerations are important determinants influencing the elderly's decision to enroll in a Medicare-HMO. At present, Medicare-HMOs enjoy a relative advantage over standard fee-for-service Medicare in terms of the value dimension. However, some health care regulatory developments which may affect this differential advantage are on the horizon. Beginning in 1992, physicians providing health care services to Medicare beneficiaries will be reimbursed according to a new fee system called the Resource Based Relative Value Scale (RBRVS). The new system which will replace the current system of usual, customary, and reasonable charges (UCR) was introduced (under the Omnibus Budget Reconciliation Act of 1989) in response to persistent increases in Medicare disbursements for physician services. During the 1980s, real Medicare disbursements per enrollee for physician services rose at an annual rate of 8.6 percent in contrast with an annual rate of increase of 3.3 percent in hospital expenditures (Lee et al. 1990).

The RBRVS system, which is to be phased in over five years, has the immediate effect of reducing fees for surgeons and other high paid specialists and increasing fees for primary care physicians, internists, and other cognitive practitioners (Hsiao et al. 1988; Physician Payment Review Commission 1989; Wendling and Jost 1990). In addition, the RBRVS system sets limits on physicians' balance billing of Medicare beneficiaries (for the difference between the customary fee and RBRVS reimbursement). However, the RBRVS system is not a prospective reimbursement system. It does not offer physicians any direct incentives to control utilization, although its long-term intended effect is to tightly control Medicare physician expenditures through volume performance standards.

Assuming that physicians will not change their practice patterns to maintain incomes, the anticipated future impact of the RBRVS system is to lower the physician-related (Part B) out-of-pocket costs for Medicare beneficiaries using the fee-for-service system. The RBRVS system will not affect the advantages of Medicare-HMOs relative to the fee-for-service system in regard to elimination of claims-related paper work, predictability of out-of-pocket costs, and comprehensive benefits coverage. Time and effort needed on the part of the elderly to track paper work should not be underestimated. In the Colston E. Warne Lecture on consumer issues and the elderly, Moon observed: "To appreciate the problems posed by the confusing forms and bills, listen to the tales of woe of health care analysts when friends and relatives ask for some help sorting out who owes what to whom. It is a good thing that many older persons are retired, as keeping track of health care expenditures can be a full time job" (1990, 239). Medicare-HMOs will still maintain a relative advantage over the standard fee-for-service Medicare on the economic value dimension even after the advent of the RBRVS system, although the differential is expected to get narrower in the future.

Medicare-HMOs face a major challenge in their marketing communication efforts because of the many concerns, misconceptions, and suspicions the elderly have regarding HMOs. They need to adequately inform the elderly about the nature of HMOs, as a lack of such knowledge is likely to inhibit the elderly's acceptance of the new health care delivery system. Medicare-HMOs should also instill confidence among the elderly regarding quality of care as well as future financial viability and stability. Above all, they should be able to encourage and convince the elderly that any potential restrictions on choice of physicians/hospitals involved in switching from the fee-for-service system are more than compensated for by more comprehensive benefits, lower out-of-pocket costs, elimination of claims-related paperwork, and special strengths, if any, in geriatric medicine.

The last element may be especially important. In order to adequately compensate for the extreme importance placed by the elderly on continuity of patient-physician relationship, Medicare-HMOs should design plan features which address geriatric medical needs. These include, for example: offering a wide choice of physicians who have special competence in dealing with medical problems of the elderly (IPA and network HMO models may have an advantage in this regard), providing the opportunity for the elderly patient to see the same physician on each visit, and developing a coordinated care approach appropriate for treatment of multiple ailments. Thoughtful plan design and marketing efforts, taking into account the special needs and concerns of the elderly health care consumers can significantly accelerate the diffusion of the new health care delivery system of Medicare-HMOs.

Consumer Interest Issues

Medicare-HMOs represent a commitment on the part of the U.S. government to intensify competition in the delivery of health care services. It is incumbent upon policy makers, however, to ensure that "unfettered market forces" do not adversely affect consumer interests/rights (Maynes 1988) of the elderly.

The importance of objective information about Medicare-HMOs to the elderly is obvious. As Varner and Christy noted, ". . . Success or failure of any competitive model is linked in large part to the principle of informed choice, a principle that is predicated on the availability of sound, comprehensive, and comparative data" (1986, 99). Although advertising plays an important role in this regard, it is often felt that Medicare-HMOs may underinvest in general information about the nature of Medicare's private health plan options vis-a-vis the standard fee-for-service Medicare, unless they are alone or dominant in the market (Ginsburg and Hackbarth 1987). Until Medicare-HMOs gain widespread familiarity among the elderly, it may be desirable for Medicare to take a strong proactive role in information dissemination either directly or through appropriate "information brokers." An example is Health Care Financing Administration's (HCFA) funded demonstration projects in which local consumer organizations channeled information on private health plan options to the elderly (Varner and Christy 1986). Experimentation and research are needed to assist HCFA in identifying effective and economical channels and modes to convey Medicare-HMO information to the elderly.

Health care policy makers need to take steps which will provide the elderly an assurance of satisfactory quality and adequate consumer information on the care offered in Medicare-HMOs. Under current regulations, Peer Review Organizations (PROs) and Quality Review Organizations (QROs) monitor the quality of care in Medicare's private health plan options. In addition, Medicare-HMO enrollees can return to the standard Medicare system on short notice and have access to grievance and appeal mechanisms. Still, concerns persist because the elderly might be "ill-equipped to detect any erosion of quality" (Ginsburg and Hackbarth 1987, 34), and the "task of being a prudent consumer becomes complicated" for them due to cognitive problems and diminished ability to handle stress, especially at times of illness (Moon 1990, 239).

In light of the special needs of elderly health care consumers, it is important that policy makers continue rigorous monitoring of Medicare-HMOs and undertake additional measures which offer potential Medicare-HMO enrollees an assurance of satisfactory quality of care and protection against possible abusive practices such as "dumping" of heavy users of services. They may also consider requiring Medicare-HMOs to disclose standardized annual information (for example, qualifications of physicians, disenrollment rates) which contains proxy indicators of quality (Varner and Christy 1986). Such steps will facilitate informed choice as well as consumer protection for the elderly in the health care market. In the final analysis, the long-run viability of Medicare-HMOs depends on approval from a large enough segment of informed elderly consumers. (1) To test the hypothesis that the proportion of correctly classified cases is significantly different from the proportion that would be expected if the proportional chance criterion were used, the following computation was performed: [Mathematical Expression Omitted] where Q is the proportion of the validation sample observations correctly classified by discriminant analysis, P is the proportion expected using chance criterion, and n is the number of observations in the validation sample. This test is similar to that suggested by Frank, Massey, and Morrison (1965), except for the use of the pure chance criterion to define P.

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V. Kanti Prasad is Professor of Marketing and Associate Dean, School of Business Administration, The University of Wisconsin-Milwaukee; and Rajshekhar G. Javalgi is Associate Professor of Marketing, College of Business Administration, Cleveland State University, Cleveland, OH.

The authors have made equal contributions to this paper. The valuable suggestions of the Editor and two anonymous JCA reviewers are gratefully acknowledged.
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Author:Prasad, V. Kanti; Javalgi, Rajshekhar, G.
Publication:Journal of Consumer Affairs
Date:Jun 22, 1992
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