Is Fragmented Financing Bad for Your Health?

By Pizer, Steven D.; Gardner, John A. | Inquiry, Summer 2011 | Go to article overview

Is Fragmented Financing Bad for Your Health?

Pizer, Steven D., Gardner, John A., Inquiry

Americans finance health care through a variety of private insurance plans and public programs. This organizational ji'agmentation could threaten continuity of care and adversely aJfect outcomes. Using a large sample of veterans who were eligible./or mixtures of Veterans Health Administration- and Medicare-financed care, we esthnate a O'stem of equations to account j'or shnultaneiO" in the determination of financing configuration and the probability of hospitalization for an ambulatol3' care sensitive condition. We find that a change of one standard deviation in financing fragmentation increases the risk of an adverse outcome b)' one-fifth.


Health care financing in the U.S. is fragmented. Individual patients may pay for health services directly out of their own pockets, indirectly, through one (or sometimes more than one) of a multitude of private health insurance plans, or through one or more public programs. Even within a public program like Medicare, individuals can choose from a variety of health plans with different combinations of coverage and premiums, adjusting their plan choices when their tastes or circumstances change. This variety of health care financing choices has value to consumers (Danzon 1992), but it also has a cost because it makes continuity of care more difficult.

Continuity of care has been defined as a long-term relationship between a patient and a physician, regardless of the presence of any specific disease (Haggerty et al. 2003), and it is believed to be a critical determinant of quality in primary care (Starfield 1998). Continuity of care is associated with lower probability of hospitalization (Gill 1997: Mainous and Gill 1998), fewer visits to the emergency room (Gill, Mainous, and Nsereko 2000), and better immunization (Mark and Paramore 1996). Short or discontinuous relationships with providers could lead to lower quality of care because the provider's access to information about the patient's health is more limited than it would be in long, continuous relationships. When access to information is difficult, physicians may be more likely to choose treatments based on norms or past experience with other patients instead of treatments optimally tailored to an individual's particular condition and history. Frank and Zeckhauser (2007) use the colorful term "ready-to-wear" to characterize a treatment strategy that relies on norms, in contrast to "custom-made," which describes a treatment strategy that makes use of detailed, individual-specific information.

The goal of this paper is to assess empirically whether disruption in clinical relationships, resulting directly from fragmented financing, has a meaningful effect on health outcomes. We have chosen a very broad outcome: hospitalization for ambulatory care sensitive conditions (ACSC), which is a widely used and accepted measure that can be constructed easily from administrative data. To measure fragmentation, we focus on a population of low-income or disabled veterans who choose mixtures of services from private networks financed primarily by Medicare and the public network operated by the Veterans Health Administration (VA). We are able to observe all utilization for this population and, because the VA network and private networks have little overlap, we can infer with few errors discontinuity of care from fragmentation of financing.

Low-income or disabled veterans use combinations of Medicare and VA care for a variety of reasons. Low-income veterans can receive comprehensive health care from the VA at minimal financial cost, but large numbers regularly receive care from non-VA sources because VA services may not be available or may require patients to wait or to travel (Shen et al. 2003; Burgess and Fiore 1994; Prentice and Pizer 2008). Fleming et al. (1992) have documented the degree of dual use of VA and Medicare health services among veterans enrolled in Medicare. They describe an equilibrium that exists between VA and Medicare/Medicaid programs, mediated by eligibility requirements and financial controls on both sides. …

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Is Fragmented Financing Bad for Your Health?


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