Assuming and managing risk: Part II

Last month HCMA began to address the issue of hospitals assuming risk as they become more and more involved in managed care situations. This article continues that discussion. The focus is on capitation contracting, physician-related issues, and a final assessment of the risk that hospitals should and will acquire as they move forward in a heavily managed care environment.     

An innovative approach to risk and quality assessment in the regulation of care services in Scotland

The Scottish Government’s social care regulator, the Care Commission, seeks continual improvement in the quality of social care services. Its approach has been to establish a modern risk-based regulatory regime using separate measures of risk and quality. We evaluate this twin approach, firstly, in relation to the literature on predictors of poor service quality in care delivery; and, secondly, by interviewing a sample of Care Commission inspectors. We conclude that this system has important advantages, both in terms of regulatory transparency and the need for inspectors to remain sensitive to the separateness of risk and quality issues. Future revisions of risk and quality assessment within social care services, both in Scotland and further afield, should seek to minimise misunderstanding and conflict between regulators and regulatees on closely interrelated matters of risk, quality and efficiency.     

Prior health expenditures and risk sharing with insurers competing on quality

Insurers can exploit the heterogeneity within risk-adjustment classes to select the good risks because they have more information than the regulator on the expected expenditures of individual insurees. To counteract this cream skimming, mixed systems combining capitation and cost-based payments have been adopted that do not, however, generally use the past expenditures of insurees as a risk adjuster. In this article, two symmetric insurers compete for clients by differentiating the quality of service offered to them according to some private information about their risk. In our setting it is always welfare improving to use prior expenditures as a risk adjuster.     

居家还是住机构——临终老人的照料成本和死亡质量比较

我国将逐步进入深度老龄化和高龄化阶段,老年临终照料成本也将快速增长,如何在提升临终照料服务质量的同时降低照料成本成为重要的政策议题。本文利用2002—2014年中国老年健康影响因素跟踪调查(CLHLS)中的死亡人口跟踪调查数据,借助两部分模型、样本选择模型、工具变量和倾向得分匹配方法,首次对住机构老人和居家老人的临终照料直接成本和总成本进行深入比较,并借助Mlogit回归模型和倾向得分匹配方法,研究居住安排与照料成本对死亡质量的影响。研究发现,住机构老人和居家老人在支付的直接成本、总成本、死亡质量方面都没有显著差异,我国临终老人照料成本的增加显著降低了死亡质量。因此,完善养老服务体系应根据老人照料需求强度和特征精准施策。为提高老人临终前的生存质量和死亡质量,我国应开展临终照料供给侧结构性改革,大力发展机构照料,并提高临终照料的专业性。     

Why do auditors fail? What might work? What won’t?†

Auditing failures and scandals have become commonplace. In response, reformers (including the Kingman Review in the U.K. and a recent report of the U.K.’s Competition and Market Authority) have proposed a variety of remedies, including prophylactic bans on auditors providing consulting services to their clients in the belief that this will minimize the conflicts of interest that produce auditing failures. Although useful, such reforms are already in place to a considerable degree and may have reached the point of diminishing returns. Moreover, this strategy does not address the deeper problem that clients (or their managements) may not want aggressive auditing, but rather prefer a deferential and perfunctory audit. If so, auditors will realize that they are marketing a ‘commodity’ service and cannot successfully compete based on their quality of services. Rationally, they would respond to such a market by seeking to adopt a cost-minimization strategy, competing by reducing the cost of their services and not investing in new technology or higher-priced personnel.

What could change this pattern? Gatekeepers, including auditors, serve investors, but are hired by corporate management. To induce gatekeepers to better serve investors, one needs to reduce the ‘agency costs’ surrounding this relationship by making gatekeepers more accountable to investors. This might be accomplished through litigation (as happens to some degree in the U.S.), but the U.K. and Europe have rules that discourage collective litigation. Thus, a more feasible approach would be to give investors greater ability to select and remove the auditor. This paper proposes a two part strategy to this end: (1) public ‘grading’ of the auditor by the audit regulator in an easily comparable fashion (and with a mandatory grading curve), and (2) enabling a minority of the shareholders (hypothetically, 10%) to propose a replacement auditor for a shareholder vote. It further argues that both activist shareholders and diversified shareholders might support such a strategy and undertake it under different circumstances. Absent such a focus on agency costs, however, reformers are likely only re-arranging the deck chairs on the Titanic.     

An Assessment of the Provisions of Regulation (EU) No 537/2014 on Non-audit Services and Audit Firm Tenure: Evidence from Spain

On May 27, 2014, Regulation (EU) No 537/2014 was published in the Official Journal of the European Union. Aiming to enhance audit quality, the new regulation establishes important limitations to the selling of non-audit services by the audit firm to audit clients and a maximum tenure of ten years with the audit firm. However, it should be noted that the extant research has not consistently supported that non-audit services or long tenures impair the quality of audits. This research studies whether these provisions have been empirically associated with reduced audit quality for Spain. Because of its low litigation risk, the potentially negative impact of both non-audit services and tenure on audit quality should be clearly observed in the Spanish audit market. Nevertheless, we do not find significantly lower levels of audit quality associated with either non-audit services or long audit tenures. However, these results are conditional on the validity of using abnormal accruals to measure audit quality.     

The Role of Gatekeepers in Capital Markets

Gatekeepers in financial markets have the power to provide the institutional stability, fortitude, and direction necessary for the development and the smooth functioning of capital markets. At the same time, they are often motivated by their own private incentives. This along with the tradeoffs they face, and the at‐times unintended consequences of the regulations they propose and enforce, can undermine their effectiveness. A thorough understanding of gatekeepers and their roles can thus illuminate academics, the financial community, and regulators on how such gatekeepers can be the most effective and generate the greatest benefits for capital markets. Since gatekeeping roles and the literature they have inspired encompass a wide array of institutions and agencies, our overview concentrates on those that the conference papers appearing in this volume focus on. We conclude that collectively, the papers contribute to significant progress, and point out some crucial areas that call for further investigation and offer opportunities for future research.     

An analysis of the economic justification for consolidation in a secondary security market

This paper considers whether all trading in a listed security should be required to go through an exchange. To this end, the incentives for a brokerage firm to offer in-house execution services are discussed, and an analytical framework is developed which shows that, under idealized conditions, fragmentation of the market through in-house execution services would not result in any overall deterioration of market performance characteristics. However, when some of the idealized conditions are relaxed, the market fragmentation arising from in-house execution causes the gains to some customers to be more than overcome by the losses to others. The analysis, which also takes account of the desirability of enforcing reasonable trading priority rules (such as priority by price and time) across all traders, yields several public policy implications. For some unlikely scenarios, it would be possible, through appropriate commission sharing and a perfectly operating intermarket trading system, for optimal overall market performance to be consistent with the market fragmentation inherent in in-house execution services. However, for most realistic scenarios, fragmentation would cause a deterioration in the quality of the market. Thus it seems desirable to require that all trading go through a central exchange with a consolidated limit order book.     

Measuring Selection Incentives in Managed Care: Evidence From the Massachusetts State Employee Insurance Program

Capitation gives insurers incentive to manipulate their offerings to attract the healthy and deter the sick. We calculate the incentives for such service-specific quality distortions using managed care medical and pharmacy spending data for fiscal years 2001 and 2002 from the Massachusetts State Employee Insurance Program. Services most vulnerable to stinting are cardiac care, diabetes care, and mental health and substance abuse services. Empirically, the financial temptation to distort service quality increases nonlinearly with supply-side cost sharing. Our empirical results highlight how selection incentives work at cross-purposes with efforts to reward excellent chronic disease management. Initiatives coupling pay-for-performance with risk adjustment and mixed payment hold promise for aligning incentives with quality improvement.     

关于福费廷业务在中小企业融资方面应用的探讨

随着我国金融市场的迅速发展,"金融脱媒"现象日趋显现,大客户直接融资渠道不断扩大,议价能力不断加强,对银行贡献度下降速度显然超出预期,商业银行通过依托大客户维持高速增长的局面将难以为继。而中小客户市场资源丰富、发展潜力巨大,商业银行如何在兼顾风险和效益的前提下,发现可持续发展的中小企业服务的手段是寻求商业银行发展的重要课题。本文拟从商业银行创新金融产品出发,就选择FORFAIT-ING这一金融产品对中小企业融资服务的影响进行浅析与思考。     

The return of capitation preparing for population-based health care

To succeed under population-based health care, organizations need to understand thoroughly how this approach differs from traditional fee-for-service health care. To manage care under capitation, the contracting organization should have a population of sufficient size and a clear means of assigning patients to that population. To assess performance, the organization requires metrics that view performance in terms of per member per month, while avoiding common pitfalls of misapplying such metrics.     

建立我国高风险家庭儿童监测保护体系研究

儿童监护不力、遭受伤害或侵害等事件在我国有显著增加的趋势。发达国家的儿童保护服务,日益倾向以科学化和标准化的方法来评估儿童所面临的危机;并且渐以此方法为研究的目标,建立对儿童面临风险的监测标准,以及建构某些标准化的风险预估与防治模式。基于完善家庭政策、保护儿童权益和社会文明发展需要,我国应建立高风险家庭儿童监测保护体系。现有的法律法规政策、社会共识和社区发展为我国建立高风险家庭儿童监测保护体系提供了支持平台。我国高风险家庭儿童监测保护体系建设应坚持重在预防、贵在标准和成在精细的建设方针。     

Remarks on “Financial Services Integration: Right for some,Wrong for Others?”

Abstract

I have been asked to provide some introductory remarks on the structure of the financial services industry in the 21st century. Each of the panelists will give their own unique perspective on why consolidation is or is not a good idea for the firms where they work. I, on the other hand, would like to take a little time to provide an overview of what I see as competing “models” for the delivery of financial services. I will try to argue that these models are not necessarily mutually exclusive and that certain clientele may be attracted to one or the other. Thus, integration will indeed turn out to be right for some and wrong for others.     

Nonlinear incentives and mortgage officers’ decisions

In the aftermath of the recent financial crisis, banks should ensure that their incentive compensation policies appropriately balance long-term risk with short-term rewards. Using daily output data from mortgage officers in a US commercial bank, we test the notion that nonlinear contracts create time-varying incentives for the employees and impose costs on the firm. We provide empirical evidence that mortgage officers greatly increase their output toward the end of each month, when the minimum monthly quota is assessed. This occurs through a combination of reducing the processing time and approving some marginal applications. We also find that mortgages originated on the last working day of the month have a higher likelihood of delinquency.     

Membership On Editorial Boards And Finance Department Rankings

We examine membership on editorial boards of sixteen leading finance journals in 1985, 1990, 1995, and 2000. Membership on a board of a high‐quality journal is highly selective. Editors and members of editorial boards of quality journals are trusted by their peers who submit their research for publication consideration. Thus, the number of faculty represented on editorial boards of quality journals should provide a quality indication of the finance department. We use membership representation to provide a ranking of finance departments adjusted for department size and journal quality.     

The effect of non-audit services on client risk, acceptance and staffing decisions

The Sarbanes Oxley Act of 2002 prohibited auditing firms from providing certain non-audit services to audit clients and left open the possibility that other currently non-prohibited services could also be banned. This prohibition hinges, in part, on regulatory concerns that auditors were willing to accept prospective higher risk clients in order to obtain more profitable non-audit service engagements. Accounting firms rejected this claim. Given the prospect that more non-audit services could be prohibited, we revisit this debate by examining these competing claims in an experiment in which we manipulate risk and the potential to sell non-audit services and then observe the impact of these variables on auditors’ client acceptance and subsequent staffing decisions. Specifically, audit partners received client information and were asked to make an acceptance decision and propose a staffing plan for a potential engagement. We find that a higher (lower) level of risk decreased (increased) the likelihood of acceptance and this relation did not vary with the potential to provide non-audit services. These results do not support the regulators’ claims but are consistent with the firms’ claims. Further, we found that more experienced auditors were assigned to the prospective client whose management had lower integrity. This staffing plan is consistent with a risk adaptation strategy for the client with lower integrity. The prohibition of certain non-audit services has been justified on the grounds that auditors might engage in systematic opportunistic behavior. However, our results do not find such behavior which should inform the current PCAOB deliberation over whether additional services should be banned. Alternatively, different justification must be found for the prohibitions.     

EFFECTS OF NEW CONTROL SYSTEMS IN SWEDISH HEALTH CARE ORGANIZATIONS

Organizations that are radically changing their control systems provide interesting arenas for studies of the effects of such systems. Research on public organizations have shown reforms in some cases to have effects but in other cases they have had no effects. The aim of our study is to describe the introduction and effects of a new control system in the Swedish health care sector. Basically a traditional budget system is replaced with a system according to which hospitals are paid for services made. We found that the new system had functional but also some dysfunctional effects. The major functional effect was an increased productivity. This was possible due to an earlier low level of productivity. However, increased productivity demands capacity reductions given a certain production level. Such decisions must be taken by politicians but they are, however, very reluctant to reduce capacity, which may cause serious disturbances in the system and dysfunctional consequences.     

Banking crises and government intervention

Intervention has taken different forms in different countries and periods of time. Moreover, recent episodes showed that in front of an imminent crisis, the promise of no interventions made by governments is barely credible. In this paper we address the problem of resolving banking crises from the government perspective, taking into account the fact that preventing banking crises is crucial for the government. In addition, we introduce the moral hazard problem, inherent in the banking system, and consider the interaction between regulation, policy measures and banks’ behavior. To the best of our knowledge, this is the first paper that compares different policy plans to resolve banking crises in an environment where insufficiently capitalized banks have incentives to take risk, and the government has to decide whether to provide public services or impede crises. We show that when individuals highly value public services then the best policy in terms of welfare is to apply the tax on early withdrawals, as the government can transfer those taxes to the whole population by investing in public services (although at some cost). Conversely, when individuals assign a low value to consuming public services, recapitalization is the dominant policy. Finally, when the probability of a crisis is sufficiently high, capital requirements should be used.     

EQUITY AND EFFICIENCY: CLARIFYING CONFUSION FOR ENGLISH ACUTE HOSPITALS

Effective management of health care resources includes containing total costs and improving equity and efficiency. It has been argued that the only way to contain costs is by determining future finance by the principle of capitation. That principle underlies English health authorities' revenue targets which are intended to set the direction for future equitable cash allocations. A case study of an inner-city authority illustrates how its target for acute services confuses equity and efficiency. It is argued that equity is most effectively promoted not by devolving responsibility for equity to such authorities by financial targets, but by higher-level, service-based strategies. Indicators are suggested which enable distinctions to be made between equity and efficiency.