Are Fee-for-Service Costs Increasing Faster Than HMO Costs?

Published in: Medical Care, v. 23, no. 8, Aug. 1985, p. 960-966

Posted on RAND.org on January 01, 1985

by Joseph P. Newhouse, William B. Schwartz, Albert P. Williams, Christina Witsberger

It is well known that the costs of care at health maintenance organizations (HMOs) at any point in time have been lower than in the fee-for-service sector, but how costs have changed in each of these sectors has been less well-documented. The only previous study, which examined the HMO experience during the 1960s and early 1970s, found that HMO and fee-for-service costs rose at approximately the same rate. The present study, which extends this analysis to the period 1976-1981, also demonstrates that HMO costs increased at a rate not detectably different from that in the fee-for-service sector. These results are consistent with the earlier conclusions that HMOs cause a once-and-for-all reduction in cost. They also indicate that the public has been willing to pay for much of the increased costs of modern medical technology.

This report is part of the RAND Corporation External publication series. Many RAND studies are published in peer-reviewed scholarly journals, as chapters in commercial books, or as documents published by other organizations.

Our mission to help improve policy and decisionmaking through research and analysis is enabled through our core values of quality and objectivity and our unwavering commitment to the highest level of integrity and ethical behavior. To help ensure our research and analysis are rigorous, objective, and nonpartisan, we subject our research publications to a robust and exacting quality-assurance process; avoid both the appearance and reality of financial and other conflicts of interest through staff training, project screening, and a policy of mandatory disclosure; and pursue transparency in our research engagements through our commitment to the open publication of our research findings and recommendations, disclosure of the source of funding of published research, and policies to ensure intellectual independence. For more information, visit www.rand.org/about/principles.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.