Hospital Selective Contracting Without Consumer Choice

What Can We Learn from Medi-Cal?

Published in: Journal of Policy Analysis and Management, v. 22, no. 1, Winter 2003, p. 65-84

Posted on RAND.org on January 01, 2003

by Anil Bamezai, Glenn Melnick, Joyce Mann, Jack Zwanziger

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In the selective contracting era, consumer choice has generally been absent in most state Medicaid programs, including California's (called Medi-Cal). In a setting where beneficiary exit is not a threat, a large payer may have both the incentives and the ability to exercise undue market power, potentially exposing an already vulnerable population to further harm. The analyses presented here of Medi-Cal contracting data, however, do not yield compelling evidence in favor of the undue market power hypothesis. Instead, hospital competition appears to explain with greater consistency why certain hospitals choose to contract with Medi-Cal while others do not, the trends in inpatient prices paid by Medi-Cal over time, and the effect of price competition on service cutbacks, such as emergency room closures.

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