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Do Medicare HMOs still reduce health services use after controlling for selection bias?

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Author Info
Michelle M. Mello (Department of Health Policy and Management, Harvard School of Public Health, Boston, USA)
Sally C. Stearns (Health Economics Research Unit, Medical School, University of Aberdeen, UK)
Edward C. Norton (Department of Health Policy and Administration, School of Public Health, University of North Carolina at Chapel Hill, USA)

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Abstract

This study models the relationship between Medicare beneficiary decisions to join Medicare HMOs and subsequent health services utilization. The relationship between health plan choice and utilization is thought to be endogenous because of favorable selection into HMOs. Previous studies found significantly lower inpatient utilization among Medicare HMO enrollees than among nonenrollees, but lacked strong controls for selection bias. Thus, a firm conclusion could not be drawn as to whether the observed differences were attributable to the HMO practice setting or to baseline differences in the illness profiles of the two groups studied. The present study uses simultaneous equations methods, including discrete factor estimation, to test the effect of Medicare HMOs on utilization when strong controls for selection bias are imposed. The model was run on a panel of 1993-1996 data from the Medicare Current Beneficiary Survey, supplemented with linked data on Medicare HMO characteristics and area supply characteristics. The study found that even when favorable selection is controlled for, Medicare HMOs significantly reduce both the probability of hospitalization and the number of inpatient days used by those who are hospitalized. Medicare HMOs do not, however, appear to reduce the use of physician services. Copyright © 2002 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.664
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 11 (2002)
Issue (Month): 4 ()
Pages: 323-340
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Handle: RePEc:wly:hlthec:v:11:y:2002:i:4:p:323-340

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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    Other versions:
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Partha Deb & Pravin K. Trivedi, 2002. "Specification and Simulated Likelihood Estimation of a Non-normal Outcome Model with Selection: Application to Health Care Utilization," Hunter College Department of Economics Working Papers 02/5, Hunter College: Department of Economics, revised 2004. [Downloadable!]
  2. Barbara A. Mark & David W. Harless & Michael McCue, 2005. "The impact of HMO penetration on the relationship between nurse staffing and quality," Health Economics, John Wiley & Sons, Ltd., vol. 14(7), pages 737-753. [Downloadable!]
  3. Zhou Yang & Donna B. Gilleskie & Edward C. Norton, 2004. "Prescription Drugs, Medical Care, and Health Outcomes: A Model of Elderly Health Dynamics," NBER Working Papers 10964, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Michael Chernew & Philip DeCicca & Robert Town, 2008. "Managed Care and Medical Expenditures of Medicare Beneficiaries," NBER Working Papers 13747, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Randall P. Ellis & Thomas G. McGuire, 2006. "Predictability and Predictiveness in Health Care Spending," Boston University - Department of Economics - Working Papers Series WP2006-001, Boston University - Department of Economics. [Downloadable!]
    Other versions:
  6. Silvia Balia & Andrew M. Jones, 2007. "Unravelling the influence of smoking initiation and cessation on premature mortality using a common latent factor model," Health, Econometrics and Data Group (HEDG) Working Papers 07/06, HEDG, c/o Department of Economics, University of York. [Downloadable!]
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