Quality assessment in contracting for tertiary care services by HMOs: a case study of three markets

Few studies have examined the provision of tertiary care services by managed care organizations (MCOs). Moreover, little is known about the role of quality assessment and quality assurance mechanisms in the contracting process. Site visits were conducted in 1995 in three geographic areas to describe and evaluate the contracting processes for tertiary care services, especially neonatal intensive care and coronary artery bypass graft surgery, of health maintenance organizations (HMOs).

Three market areas in the United States, each with differing levels of "maturity", as primarily defined in terms of managed care penetration, were selected for study. Interviews were conducted with HMO and hospital managers about the processes for identifying potential tertiary care hospitals and mechanisms for quality assessment and quality improvement (QI) that are considered in the contracting process.

The most sophisticated contracting arrangements were found in the most mature market-where HMOs select hospitals for tertiary care services based on both the price and quality of services, with quality assessed through both objective and subjective data. Yet in all three markets, quality assessment was the least well-developed component of tertiary care contracting. Even in the mature market, we found inconsistent use of even validated quality or outcomes measures in hospital contracting.

The potential of MCOs to increase quality depends on their ability to identify high-quality hospitals and their willingness to direct enrollees to those hospitals. Yet inconsistent evidence was found that mechanisms for evaluating and rewarding quality are being fully adopted in the three markets studied.