HMO Performance: The Recent Evidence

Health maintenance organizations (HMOs) are being promoted as a strategy to modify the U.S. health care delivery system toward more economical patterns, encouraging preventive and ambulatory rather than costly hospital services. Evidence of HMO performance has accumulated over the years, much of it reviewed in 1969. Since then, additional evidence suggests that the “prepaid group practice” (PGP) model of HMO continues to yield lower hospital use, relatively more ambulatory and preventive service, and lower overall costs (counting both premiums and out-of-pocket expenditures) than conventional open-market fee-for-service patterns. Economies of scale in group practice per se are still not proved, but some evidence supports this theoretical hypothesis. New data point to reduced disability from the PGP model of HMO, as well as to more favorable consumer attitudes (based mainly on the economic advantages, in spite of certain impersonalities of clinics) than exist toward conventionally insured private solo practice. The medical care foundation (free choice of private practitioners with fee payments) model of HMO has yielded some evidence of economies in physician’s care, but none in hospital use. HMOs entail hazards of underservicing and distorted risk-selection, but with appropriate public monitoring they constitute an approach to health planning, stressing local initiative, competition, and incentives to self-regulation.

Author(s): Milton I. Roemer; William Shonick

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Volume 51, Issue 3 (pages 271–317)
Published in 1973