HMO Market Share and Its Effect on Local Medicare Costs

摘要

The current Medicare reimbursement formula for Health Maintenance Organizations (HMOs) is based on fee-for-service (FFS) costs in a local area. As the Medicare market share increases, HMOs in the area may plausibly affect FFS costs, raising the danger that HMOs themselves will distort the Medicare payment levels. There are four mechanisms by which HMOs could affect Medicare costs: (1) biased selection; (2) competition; (3) spillover practice patterns from Independent Physician Associations (IPAs); and (4) by formula (HMOs are paid 95% of FFS costs). The paper uses regression analysis to examine whether HMO market share increases or decreases FFS costs. The results suggest that HMOs decrease Medicare expenditures by 1.2% in the short run and as much as 3.9% in the long run.