Increase the Medicare Out Of Pocket Costs and Watch Hospitalizations Go Up

Years ago, the Disease Management Care Blog worked with a Medicare Advantage health plan that increased a variety of its outpatient co-pays. It wasn't long before the disease management nurses began to report, because of the increased out-of-pocket costs, that patients were refusing health care services . We suspected this was going to lead to problems, but we never got around to proving it.

Thanks to this article (free download) in the New England Journal, there is now good evidence that the phenomenon is real : a blunt plan-wide increase in patient co-pays - even if modest - can seriously backfire.

Thanks to access to Medicare's information systems, the authors of this study found 18 Medicare Advantage Plans that raised the co-payments for outpatient physicians services (from an average of about $7 to about $14 for primary care vistis, about $12 to $22 for specialty care visit and about $150 to $330 for a typical 4 day inpatient stay) and 18 Plans that were otherwise similar but didn't change the co-payments. Over one year, all the Plans experienced increases in health care utilization, but the Plans that increased the co-pays had much lower increases in outpatient visits and much larger increases in inpatient utilization. In summary, for every 100 Medicare Advantage enrollees who were exposed to the level of co-payment, there were relatively 20 fewer outpatient visits, more than 2 additional admissions and 13 additional inpatient days.

While not a randomized clinical trial, the DMCB thinks this is pretty good evidence that Medicare Advantage enrolles are quite sensitive to increases on their out of pocket costs for health care services. What's more, it appears that the accompanying declines in outpatient utilization lead to declines in health status that, in turn, lead to potentially avoidable hospitalizations - despite the increased inpatient co-payments.

Unfortunately, the authors didn't calculate any bottom line. It may be possible that the transfer of costs to their enrollees still resulted in overall savings despite the increased inpatient stays. In addition, it's important to note that these results may not apply to commerical or employer self-insured plans.

For disease management organizations, this is an important study because relatively mild changes in out of pocket expenses can mean big changes in utilization, including services for chronic illness care. For Medicare, this is an important insight on the direct connection between out of pocket costs and health care quality.