Ownership, competition, and the adoption of new technologies and cost-saving practices in a fixed-price environment

Advances in medical technology have been implicated as the primary cause of rising health care expenditures. It is not yet known whether the increasing prevalence of managed care mechanisms, particularly capitation, will change substantially incentives for acquiring and using cost-increasing innovations. We examined the decisions of dialysis units (a set of providers that has faced capitation and real decreases in payment for several decades) with respect to use of cost-increasing technologies that enhance quality of care, cost-cutting practices that reduce quality of care, and amenities desired by patients that are unrelated to quality of care. We found that the dialysis payment system does not appear to have blocked access to a number of new, quality-enhancing technologies that were developed in the 1980s. However, facilities made adjustments along other valuable margins to facilitate adoption of these technologies; use of new technologies varied with numerous facility, regulatory, and case-mix characteristics including ownership, chain membership, size, market competition, and certificate of need programs. Interestingly, the trade-offs made by for-profit and nonprofit facilities when faced with fixed prices appeared quite different. For-profits tended to deliver lower technical quality of care but more amenities, while nonprofits favored technical quality of care over amenities. Our findings may have implications for the response of other types of health care providers to capitation and increasing economic constraints.