Health maintenance organizations as an instrument for cost containment policy

by Sinclair B. Coleman

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Policymakers at all levels have argued for the expansion of Health Maintenance Organizations (HMOs) as a way to introduce some incentives for economy into the health care system. It is claimed that HMOs reduce costs by lowering the level of hospitalization--either admissions rates, length of stay, or surgery rates--and emphasizing preventive measures. The available evidence generally supports the former, but not the latter. The cost savings vary, however, with the organization of the HMO. Independent Practice Association (IPA) HMOs tend to show the smallest cost savings. But, the creation and expansion of IPAs is generally easier than for other types of HMOs; the type of HMO most likely to grow in number is thus the type likely to produce the least cost savings. Simple extrapolation of health cost savings from expected growth in HMO enrollment would seriously overestimate the likely cost savings.

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