COST AND FINANCING ISSUES IN HEALTH CARE REFORM

NIH GUIDE, Volume 22, Number 4, January 29, 1993



PA NUMBER:  PA-93-45



P.T. 34



Keywords:

  Health Care Economics 

  Health Services Delivery 



Agency for Health Care Policy and Research



PURPOSE



The Agency for Health Care Policy and Research (AHCPR) conducts and

supports research, demonstration projects, and evaluations of health

care services and systems delivering such services.  The AHCPR

announces a renewed interest in the role that market forces play in

the provision and financing of health care.  Earlier program notes on

the role of market forces produced research that has contributed to

the scientific knowledge on which current health care reform

proposals are based.  This program announcement (PA) emphasizes a

need for short term research to assess key cost and financing issues

that underlie efforts to reform our health care system.



The AHCPR has a mandate to conduct and support research on the role

of cost, productivity, and market forces in the organization,

financing, and delivery of health care services.  A major AHCPR

responsibility is support for research that focuses on problems of

immediate concern to policymakers at the Federal and state levels.

Consistent with this charge, AHCPR encourages research addressing

questions raised in formulating policy changes to deal with critical

problems in the health care sector.



HEALTHY PEOPLE 2000



The Public Health Service (PHS) is committed to achieving the health

promotion and disease prevention objectives of "Healthy People 2000,"

a PHS-led national activity for setting priority areas.  This Program

Announcement, Cost and Financing Issues in Health Care Reform, is

related to the access-to-care objectives.  Potential applicants may

obtain a copy of "Healthy People 2000" (Full Report:  Stock No.

017-001-00474-0 or Summary Report:  Stock No. 017-001-00473-1)

through the Superintendent of Documents, Government Printing Office,

Washington, DC 20402-9325 (telephone 202-783-3238).



ELIGIBILITY REQUIREMENTS



Applications may be submitted by domestic and foreign non- profit

organizations, public and private, including universities, clinics,

units of State and local governments, non-profit firms, and

non-profit foundations.  Applications from minority and women

investigators are encouraged.



MECHANISM OF SUPPORT



This Program Announcement will use the research project grant (R01).

Responsibility for the planning, direction, and execution of the

proposed project will be solely that of the applicant.  It is

anticipated that projects will be accomplished in one to two years.

This PA is in effect through March 31, 1994.



RESEARCH OBJECTIVES



Background



In response to continued growth in costs of health care and to

increasing numbers of persons without access to basic health care

services, a broad consensus has evolved that the U.S. health care

system should be reformed.  Many states and a number of regional

coalitions have already initiated reform programs, providing natural

laboratories for assessing the effects of specific organizational,

financial, and regulatory mechanisms on utilization, costs or access

to services.  Reform initiatives that are in place or under

development include:  mandating that employers cover employees;

providing individuals financial resources and incentives to purchase

coverage; designating public agencies to purchase or pay for health

care; reforming insurance markets for small employers; integrating

financial, clinical, and managerial aspects of health care under

publicly accountable groups competing for customers on price and

quality.  Analysis and evaluation of such programs, along with

focused research on aspects of health care costs and financing such

as those discussed below are critical for informing further decisions

regarding national health care reform.



Policy issues and research priorities



Central policy issues arise from the intended effects of reform--cost

containment and improved access:  How much will reforms cost and who

will actually pay?  Which reforms would provide quality, effective,

appropriate health care to those now without access?  The basic

research question is clear: What are the likely policy-relevant

behavioral responses to reforms from purchasers (employers,

individuals, public institutions), providers (physicians, other

practitioners, hospitals), and insurers?



A broad array of research questions may be considered as relevant to

health care reform.  Some questions, however, require longer-term

research (e.g., questions about emergence, dissemination, and effects

of new technology). Other questions are topics of forthcoming PAs.

Four research areas emerge as AHCPR priorities because of their

relevance to the development of effective health care reform

programs, commonality to all proposed and on-going reforms, and

amenability to shorter-term projects:  (1) demand for health

insurance, (2) managed and coordinated care, (3) health insurance

reforms, (4) role of information in health care decisions.  To

generate the required analytical effort, AHCPR gives high priority to

the funding of research proposals focused specifically on cost and

financing issues in health care reform.  Investigators are encouraged

to use strategies that avoid primary data collection efforts, and to

focus instead on designs and methods that produce results more

quickly, such as using existing data, micro-simulation, and rigorous

syntheses.



Demand for Health Insurance



This research area encompasses behavioral responses associated with

the purchasing of health insurance, with emphasis on the

responsiveness of purchasers to price, the formation of groups for

purchasing, and purchasing from the points-of-view of big employers,

small employers, workers and their dependents, and governments.

Illustrative research questions include:



o  How might changes in tax subsidies for health insurance affect

employee decisions regarding choice of health plans?



o  Under what market and regulatory conditions do buying cooperatives

come into existence?  How do they work?  What is the nature of the

negotiation process between buying cooperatives and health plans?

Who uses cooperatives?  What are the effects on access?  Do buying

cooperatives reduce costs (e.g., administrative costs)?



o  What is the price elasticity of demand by individuals for specific

health insurance benefits?  What individual characteristics affect

the price elasticity of demand?  How are labor force decisions

affected by the availability of employer-sponsored health insurance?



o  How does workers' spouse/dependent coverage affect costs and

access?



Managed and Coordinated Care



Managed care (or coordinated care) may be defined as structured

interventions into the health care decisions of providers and

consumers intended to increase the appropriateness, quality and

cost-effectiveness of care and to control system costs.  Advocates of

managed care argue that intervention is required because consumers

are unable to distinguish unnecessary and inappropriate medical care

from that which is essential and useful.  Illustrative research

questions include the following:



o  Do managed care systems save money after accounting for the impact

of favorable risk selection?  If so, how do they save money?



o  What are the differential effects on health care costs and quality

of more recent innovations in managed care systems (e.g., Preferred

Provider Organizations, Independent Practice Associations)?



o  What is the role of industry structure in explaining costs?  What

are the effects on costs of large networks for coordination of care

(super-HMOs)?



Health Insurance Reforms



This research area includes the market for employment-based health

insurance with special emphasis on small employers.  Three-quarters

of the uninsured are employed persons and their dependents; and

workers at small firms are more likely to be uninsured than their

counterparts at large firms. Illustrative research questions include

the following:



o  What determines whether or not employers offer health insurance?

Why do companies self-insure?  How will different levels of subsidies

change the incentive for small firms to purchase insurance coverage

for their employees?



o  How may unbiased estimates of risk be produced using self-reported

measures of functional health status and/or data on prior

utilization?  To what extent is diminished access to care associated

with failure of small firm and individual health insurance markets to

provide lower-cost insurance?



o  How are premiums, costs, benefit packages, and insured populations

affected when insurers face relatively sophisticated and organized

purchasers (e.g., health insurance purchasing cooperatives)?  What

determines the structure of the health insurance industry (entry,

exit, rating systems)?



o  What evidence can States provide about the effectiveness of

various insurance reforms on cost-containment and increased access to

care?  What are the effects of regulation (including ERISA) in terms

of costs and access (including pre-existing conditions, reinsurance,

self- insurance)?  How might risk adjustment systems work at the

state-level and what are their likely effects?  What determines the

stability of insurance pools?  What would be the effect of minimum

benefit packages on special populations (e.g., aged, disabled,

persons with HIV), and on costs and access in general?  How do public

insurance programs affect the conduct, structure and performance of

the health insurance industry?  What are the ultimate effects of such

changes in the health insurance industry on costs and access?



The Role of Information in Health Care Decisions



Comparative information about the costs and outcomes of health care

providers and health care plans is not normally available to

purchasers, and this lack of information makes it difficult to make

informed choices.  This lack of information also inhibits the ability

of health plans to select high quality and cost efficient health care

providers.  Research questions include the following:



o  How is existing information used (e.g., during open enrollments)

by purchasers, insurers, and providers?  What are the effects of

advertising in health care markets?



o  What are the characteristics of information systems that help

health care purchasers make meaningful comparisons of cost and

quality between health plans and health care providers?  How can

these systems be established and funded?



SPECIAL INSTRUCTIONS TO APPLICANTS CONCERNING INCLUSION OF WOMEN AND

MINORITIES IN RESEARCH STUDY POPULATIONS



The AHCPR requires all applicants for research grants to include

minorities and women in study populations so that research findings

can be of benefit to all persons at risk of the disease, disorder, or

condition under study.  Special emphasis must be placed on the need

to include minorities and women in studies of diseases, disorders and

conditions which disproportionately affect them.  This policy is

intended to apply to males and females of all ages.  If women or

minorities are excluded or inadequately represented in research, a

clear and compelling rationale should be provided.



This policy applies to all AHCPR research grants.  The AHCPR will not

award grants for applications which do not comply. If the required

information is not contained in the application, the application will

be returned without review.



The compositions of the proposed study population must be described

in terms of gender and racial/ethnic group.  In addition, gender and

racial/ethnic issues should be addressed in developing a research

design and sample size appropriate for the scientific objectives of

the study.  This information should be included in the form PHS 398

in Sections 1-4 of the Research Plan and summarized in Section 5,

Human Subjects.



Applicants are urged to assess carefully the feasibility of including

the broadest possible representation of minority groups.  However,

the AHCPR recognizes that it may not be feasible or appropriate in

all research projects to include representation of the full array of

United States racial/ethnic minority populations (i.e., American

Indians/Alaskan Natives, Asian/Pacific Islanders, Blacks, Hispanics).

Where appropriate, the applicant must provide the rationale for

studies on single minority population groups.



For foreign awards, the policy on inclusion of women applies fully;

because the definition of minority differs in other countries, the

applicant must discuss the relevance of research involving foreign

population groups to the United States' populations, including

minorities.



Peer reviewers will address specifically whether the research plan in

the application conforms to these policies. If the representation of

women or minorities in a study design is inadequate to answer the

scientific questions(s) addressed and the justification for the

selected study population is inadequate, it will be considered a

scientific weakness or deficiency in the study design and will be

reflected in assigning the priority score to the application.



APPLICATION PROCEDURES



Applications are to be submitted on the grant application form PHS

398 (rev. 09/91), and will be accepted at the standard application

deadlines as indicated in the application kit.  State and local

governments may use Form PHS 5161 and submit an original and two

copies of the application.



Application kits are available at most institutional offices of

sponsored research; the Office of Grants Inquiries, Division of

Research Grants, National Institutes of Health, Westwood Building,

Room 449, Bethesda, MD 20892, telephone 301-496-7441; and may also be

obtained from the Office of Scientific Review, Agency for Health Care

Policy and Research, 2101 East Jefferson Street, Suite 602,

Rockville, MD 20852-4908, telephone 301-227-8449.  The title and

number of the announcement must be typed in Section 2a on the face

page of the application.



The completed original application and five legible copies must be

sent or delivered to:



Division of Research Grants

National Institutes of Health

Westwood Building, Room 240

Bethesda, MD  20892**



The Division of Research Grants (DRG) will not accept any application

in response to this announcement that is essentially the same as one

currently pending initial review, unless the applicant withdraws the

pending application.  The DRG will not accept any application that is

essentially the same as one already reviewed.  This does not preclude

the submission of substantial revisions of applications already

reviewed, but such applications must include an introduction

addressing the previous critique.



Applicants are encouraged to apply by the earliest possible

submission date.  The first due date is June 1, 1993.  Thereafter,

the due dates for applications are October 1 and February 1, 1993.

Applications for R01 grants must be received by the Division of

Research Grants, NIH.  An application received after the deadline may

be acceptable if it carries a legible proof-of-mailing date assigned

by the carrier and the proof-of-mailing date is not later than one

week prior to the deadline data.



REVIEW CONSIDERATIONS



Review criteria for AHCPR grant applications are significance and

originality from a scientific and technical viewpoint and relevance

to the contemporary national health care reform debate; adequacy of

the method to carry out the project; availability of data or the

proposed plan to collect data required for the project;

qualifications and experience of the Principal Investigator and

proposed staff; adequacy of the plan for organizing and carrying out

the project; reasonableness of the proposed budget; and adequacy of

the facilities and resources available to the applicant.



Upon receipt, applications will be reviewed for completeness and

responsiveness.  Incomplete applications will be returned to the

applicant without further consideration.  Applications will be

evaluated in accordance with the criteria stated above for

scientific/technical merit by an appropriate peer review group.

Applications assigned to the AHCPR requesting total direct costs in

excess of $50,000 will be reviewed by the National Advisory Council

for Health Care Policy, Research, and Evaluation for policy relevance

and research value.



AWARD CRITERIA



Applications will compete for available funds with all other

applications.  The following will be considered in making funding

decisions:  Quality of the proposed project as determined by peer

review; availability of funds; and program balance among research

areas of the announcement.  The anticipated dates of award for

applications are 10 months from the date of submission.



INQUIRIES



Those considering an application in response to this PA are strongly

encouraged to discuss their project with AHCPR program administrators

before formal submission.  The AHCPR welcomes the opportunity to

clarify any issues or questions from potential applicants.  Copies of

a Grant Announcement based upon this PA will be available from the

AHCPR Publications Clearinghouse, P.O. Box 8547, Silver Spring, MD

20907, (1-800-358-9295) by April 15, 1993.  Direct inquiries

regarding programmatic issues to:



Michael Hagan

Center for General Health Services Extramural Research

Agency for Health Care Policy and Research

2101 East Jefferson Street, Suite 502

Rockville, MD  20852-4908

Telephone:  (301) 227-8354

FAX:  (301) 227-8155



Direct inquiries regarding fiscal matters to:



Ralph Sloat

Agency for Health Care Policy and Research

2101 East Jefferson Street, Suite 601

Rockville, MD  20852-4908

Telephone:  (301) 227-8447



AUTHORITY AND REGULATIONS



This program is described in the Catalog of Federal Domestic

Assistance No. 93.180 and 93.226.  Awards are made under

authorization of the Public Health Service Act, Title IX, as amended

(Public Law 101-239 and Public Law 102-410) and administered under

PHS grants policies and Federal Regulations 42 CFR 67, Subpart A and

45 CFR Part 74, (45 CFR Part 92 for State and local governments).

This program is not subject to the intergovernmental review

requirements of Executive Order 12372.



.

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