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The Effect of HMOs on the Inpatient Utilization of Medicare Beneficiaries


  • Nasreen Dhanani,

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    • Address correspondence to Nasreen Dhanani, Ph.D., RAND, 1700 Main Street, PO Box 2138, Santa Monica, CA 90407-2138. Dr. Dhanani is also with the School of Policy, Planning, and Development, University of Southern California. June F. O'Leary, Ph.D., and Glenn Melnick, Ph.D., are with the School of Policy, Planning, and Development, University of Southern California, and RAND. Emmett Keeler, Ph.D., and Anil Bamezai, Ph.D., are also with RAND.

  • June F. O'Leary,

  • Emmett Keeler,

  • Anil Bamezai,

  • Glenn Melnick

  • This project was supported by grant # R01HS10256-03 from the Agency for Healthcare Research and Quality and funding from the Office of the Assistant Secretary for Planning and Evaluation, United States Department of Health and Human Services. Support for this paper was also provided by a grant from The Robert Wood Johnson Foundation, Princeton, New Jersey.


Objective. To determine the effect of joining HMOs (health maintenance organizations) on the inpatient utilization of Medicare beneficiaries.

Data Sources. We linked enrollment data on Medicare beneficiaries to patient discharge data from the California Office of Statewide Health Planning and Development (OSHPD) for 1991–1995.

Design and Sample. A quasi-experimental design comparing inpatient utilization before and after switching from fee-for-service (FFS) to Medicare HMOs; with comparison groups of continuous FFS and HMO beneficiaries to adjust for aging and secular trends. The sample consisted of 124,111 Medicare beneficiaries who switched from FFS to HMOs in 1992 and 1993, and random samples of 108,966 continuous FFS beneficiaries and 18,276 continuous HMO enrollees yielding 1,227,105 person-year observations over five years.

Main Outcomes Measure. Total inpatient days per thousand per year.

Principal Findings. When beneficiaries joined a group/staff HMO, their total days per year were 18 percent lower (95 percent confidence interval, 15–22 percent) than if the beneficiaries had remained in FFS. Total days per year were reduced less for beneficiaries joining an IPA (independent practice association) HMO (11 percent; 95 percent confidence interval, 4–19 percent). Medicare group/staff and IPA-model HMO enrollees had roughly 60 percent of the inpatient days per thousand beneficiaries in 1995 as did FFS beneficiaries (976 and 928 versus 1,679 days per thousand, respectively). In the group/staff model HMOs, our analysis suggests that managed care practices accounted for 214 days of this difference, and the remaining 489 days (70 percent) were due to favorable selection. In IPA HMOs, managed care practices appear to account for only 115 days, with 636 days (85 percent) due to selection.

Conclusions. Through the mid-nineties, Medicare HMOs in California were able to reduce inpatient utilization beyond that attributable to the high level of favorable selection, but the reduction varied by type of HMO.