eprintid: 10197004
rev_number: 6
eprint_status: archive
userid: 699
dir: disk0/10/19/70/04
datestamp: 2024-09-16 09:25:14
lastmod: 2024-09-16 09:25:14
status_changed: 2024-09-16 09:25:14
type: article
metadata_visibility: show
sword_depositor: 699
creators_name: She, Zhaowei
creators_name: Ayer, Turgay
creators_name: Gokpinar, Bilal
creators_name: Hughes, Danny R
title: Strategic Cross-Subsidization in Healthcare Capitation Programs: Evidence from Medicare Advantage
ispublished: inpress
divisions: UCL
divisions: B04
divisions: F49
keywords: healthcare markets, capitation payment models, risk selection, difference in differences
note: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
abstract: Problem definition: This study identifies a resource misallocation problem in Medicare Advantage (MA), the United States’ largest healthcare capitation program, which may result in discrepancies between patients’ health status and the healthcare resources allocated to them. Methodology/results: Utilizing a large commercial insurance database with claims from more than 2 million MA enrollees, this research investigates the allocation of MA capitation payments. By exploiting an exogenous policy shock on MA capitation payments through a difference-in-difference design, we find empirical evidence of an illegal practice known as “cross-subsidization.” This practice involves MA health plans strategically reallocating portions of the capitation payments intended for one group of patients to spend on another group of patients. Additionally, we show that this cross-subsidization practice is associated with the risk selection problem in MA, where low-risk patients are more likely to enroll in MA compared with high-risk patients. Managerial implications: This research unveils a previously undocumented healthcare resource misallocation problem, that is, strategic cross-subsidization. This practice is explicitly prohibited by law in the United States due to its heightened effect on the undesired risk selection within capitation programs, where health plans cherry-pick profitable enrollees through strategic benefit designs. Our study has direct practical implications as it underscores the need for greater transparency in MA claims data to enable the Centers for Medicare & Medicaid Services to more effectively administer the MA program.
date: 2024-09-09
date_type: published
publisher: Institute for Operations Research and the Management Sciences (INFORMS)
official_url: http://dx.doi.org/10.1287/msom.2023.0637
oa_status: green
full_text_type: other
language: eng
primo: open
primo_central: open_green
verified: verified_manual
elements_id: 2311537
doi: 10.1287/msom.2023.0637
lyricists_name: Gokpinar, Bilal
lyricists_id: BGOKP84
actors_name: Gokpinar, Bilal
actors_id: BGOKP84
actors_role: owner
full_text_status: public
publication: Manufacturing & Service Operations Management
issn: 1523-4614
citation:        She, Zhaowei;    Ayer, Turgay;    Gokpinar, Bilal;    Hughes, Danny R;      (2024)    Strategic Cross-Subsidization in Healthcare Capitation Programs: Evidence from Medicare Advantage.                   Manufacturing & Service Operations Management        10.1287/msom.2023.0637 <https://doi.org/10.1287/msom.2023.0637>.    (In press).    Green open access   
 
document_url: https://discovery.ucl.ac.uk/id/eprint/10197004/1/Strategic_Cross_Subsidization__MSOM___MainPaper_.pdf