Selective contracting in California: experience in the second year.

Area of Science:

• Health Services Research
• Health Policy Analysis
• Healthcare Economics

Background:

• Selective contracting for health services is in its third year of implementation in California.
• The model is expanding from the Medicaid program into the private sector.
• This system aims to control healthcare costs through negotiated contracts.

Purpose of the Study:

• To evaluate the impact and benefits of selective contracting in California.
• To assess the effects on the Medicaid program and the private healthcare market.
• To determine if quality of care or patient access has been compromised.

Main Methods:

• Analysis of hospital contracting data with Medicaid and private payers.
• Review of state budget allocations for inpatient services.
• Examination of operational Preferred Provider Organizations (PPOs) and their pricing strategies.
• Assessment of reported changes in provider behavior and healthcare policy.

Main Results:

• 274 hospitals are now under contract with Medicaid.
• Projected state budget increase for inpatient services is only 1% for FY 1984-1985.
• Approximately 50 Preferred Provider Organizations (PPOs) are operational.
• Hospitals offer discounts of 10%-20% (up to 40%) to private payers.
• PPO premiums are 10%-20% lower than indemnity rates.
• No measurable decrease in quality or access for Medicaid patients has been observed.

Conclusions:

• Selective contracting benefits both the Medicaid program and the private sector in California.
• The system incentivizes competition, leading to significant cost reductions.
• Provider behavior has been altered, demonstrating the effectiveness of competitive strategies.
• Selective contracting continues to be a dominant force in state health policy, with no adverse effects on care quality or access demonstrated to date.