Cost Research
2016 Legislative Update
The Allgrunn Study in Plain English
The study authored by Dr. Michael Allgrunn entitled “Any Willing Provider Legislation: A Cost Driver?” published in June, 2012 examined health care expenditures in different states over time, and tested whether AWP laws have any significant effect on health care expenditures.

In the study, Allgrunn examined all discoverable scientific studies regarding AWPi going back nearly 20 years, finding none that specifically address the cost effect of adding AWP legislation for physicians and hospitals. “Most discuss the possible effect of AWP on costs, but few follow up with empirical analysis. Those that use data are either focused on the effects of AWP on profitability, or fail to isolate the effect of AWP in particular.”
How could AWP increase costs?
Allgrunn outlined 2 theoretical reasons why AWP could increase costs: By removing the efficiencies gained as contracted providers accepting lower reimbursement in exchange for volume. Increased administrative costs. By dealing with more providers, plan overhead may be increased. [NOTE: admin costs average around 27% of health care outlays.]

Allgrunn noted that these efficiencies hold down costs in practice only if savings are passed on to patients in the form of lower out-of-pocket expenditures. He further pointed out that AWP’s effect on health care plan’s efforts to encourage efficiency on the part of providers is “unclear.”
Could AWP actually decrease costs?
AWP may actually lower costs, because the market power of dominant health care systems may cause artificially high rates. [NOTE: This seems to be supported by this Argus-Leader article, http://www.argusleader.com/article/20130728/NEWS/307280032/S-D-insurance-costs-high-study-says-but-state-officials-aren-t-so-sure.”]

The increase in competition brought about by AWP may have the effect of lowering costs.
Have no effect on costs?
High-volume providers would still have whatever cost savings they had before AWP. Providers would still organize to handle high volume. Smaller providers would still be at a disadvantage relative to the larger providers. Since health care plans would set requirements and reimbursement rates, large

providers would be better able to profitably meet those requirements, and patients would continue to be served by large providers.

If there are no real returns to scale, selective contracting results in no cost savings, and AWP legislation would have little effect.

If cost savings are retained by the insurance company, AWP would simply shift profits back to providers, leaving expenditures unchanged.

Finally, some combination of the arguments for and against AWP as a cost-driver could simply balance out, resulting in little or no change in health care costs.
An Econometric Model
Allgrunn and his team created a modelii to gauge the effect of AWP laws in states. Unlike other studies, Allgrunn isolated the effect of AWP on physicians and hospitals instead of lumping together numerous other health insurance-related relationships. The model’s purpose was to estimate the effect of adding an AWP law concerning physicians and hospitals, holding other variables that could affect costs constant.
Results: Econometric Model Output
The model was executed using 2 different datasets, both covering expenditures in all 50 states as compared to 14 states with laws like IM17.

The first dataset demonstrates that the addition of an AWP is associated with a decrease in personal health care expenditures per-capita by $246.494 per year. The second finds that the addition of an AWP law is associated with a 5.7% decrease in personal health care expenditures per capita, or about $311.56.

Dr. Allgrunn suggested that these cost savings may occur due to the dilution of the market power of large health plans.
Conclusion
Quote, “We find no evidence that AWP legislation would increase personal health expenditures in South Dakota. Using a multivariate regression with fixed effects, we find that AWP is actually associated with lower costs for states with regulatory statutes similar to South Dakota. Many factors have contributed to increasing expenditures on health care costs over time, but AWP does not appear to be one of them.”

Additionally, “Having more options to choose from when selecting a health care provider is generally associated with an improvement in patient satisfaction with their physicians, clinics, and hospitals as well as with the quality of care they receive.”


Click here to read Allgrunn’s complete study