Ownership, competition, and the adoption of new technologies and cost-saving practices in a fixed-price environment

Advances in medical technology have been implicated as the primary cause of rising health care expenditures. It is not yet known whether the increasin g prevalence of managed care mechanisms, particularly capitation will chang e substantially incentives for acquiring and using cost-increasing innovati ons. We examined the decisions of dialysis units (a set of providers that h as faced capitation and real decreases in payment for several decades) with respect to use of cost-increasing technologies that enhance quality of car e, cost-cutting practices that reduce quality of care, and amenities desire d by patients that are unrelated to quality of cai-e. We found that the dia lysis payment system does not appear to have blocked access to a number of new, quality-enhancing technologies that were developed in the 1980s. Howev er, facilities made adjustments along other valuable margins to facilitate adoption of these technologies; use of new technologies varied with numerou s facility, regulatory, and case-mix characteristics including ownership, c hain membership, size, market competition, and certificate of need programs . Interestingly, the trade-offs made by for-profit and nonprofit facilities when faced with fixed prices appeared quite different. For-profits tended to deliver lower technical quality of care bur more amenities, while nonpro fits favored technical quality of care over amenities. Our findings may hav e implications for the response of other types of health care providers to capitation and increasing economic constraints.