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Managed Care and Health Care Expenditures: Evidence From Medicare

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  • Laurence C. Baker
  • Sharmila Shankarkumar

Abstract

Increases in the activity of managed care organizations are likely to have a number of implications for the structure and functioning of the US health care market. One possibility is that increases in managed care activity may have 'spillover effects,' influencing the performance of the entire health care delivery system, so that care for both managed care and non-managed-care patients is affected. Some discussions of Medicare reform have incorporated spillover effects as a way that increasing Medicare HMO enrollment could contribute to savings for Medicare. This paper investigates the relationship between HMO market share and expenditures for the care of beneficiaries enrolled in traditional fee-for-service Medicare. We find that increases in system-wide HMO market share (including Medicare and non-Medicare enrollment) are associated with declines in both Part A and Part B fee-for-service expenditures. The fact that managed care can influence expenditures for this population suggests that managed care activity can have broad effects on the entire health care market. Increases in Medicare HMO market share are linked with increases in Part A expenditures and with small decreases in Part B. This suggests that any spillovers directly associated with Medicare HMO enrollment are small. For general health care policy discussions, these results suggest assessment of new policies should account not only for the effects of managed care on enrollees, but also for its system-wide effects. For Medicare policy discussions, these findings imply previous results that showed the existence of large spillover effects associated with increases in Medicare HMO market share, but did not account for system-wide managed care activity and relied on older data, overstated the magnitude of actual Medicare spillovers.

Suggested Citation

  • Laurence C. Baker & Sharmila Shankarkumar, 1997. "Managed Care and Health Care Expenditures: Evidence From Medicare," NBER Working Papers 6187, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6187
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    References listed on IDEAS

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    1. Noether, Monica, 1988. "Competition among hospitals," Journal of Health Economics, Elsevier, vol. 7(3), pages 259-284, September.
    2. Cromwell, Jerry & Mitchell, Janet B., 1986. "Physician-induced demand for surgery," Journal of Health Economics, Elsevier, vol. 5(4), pages 293-313, December.
    3. Baker, Laurence C & Corts, Kenneth S, 1996. "HMO Penetration and the Cost of Health Care: Market Discipline or Market Segmentation?," American Economic Review, American Economic Association, vol. 86(2), pages 389-394, May.
    4. Charles E. Phelps, 1992. "Diffusion of Information in Medical Care," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 23-42, Summer.
    5. Laurence C. Baker, 1994. "Does Competition from HMOs Affect Fee-For-Service Physicians?," NBER Working Papers 4920, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Sylvia H. Hsu & Sandy Q. Qu, 2012. "Strategic Cost Management and Institutional Changes in Hospitals," European Accounting Review, Taylor & Francis Journals, vol. 21(3), pages 499-531, November.
    2. Núria Mas, 2013. "Responding to financial pressures. The effect of managed care on hospitals’ provision of charity care," International Journal of Health Economics and Management, Springer, vol. 13(2), pages 95-114, June.
    3. Yu-Chu Shen & Vivian Wu & Glenn Melnick, 2008. "The Changing Effect of HMO Market Structure: An Analysis of Penetration, Concentration, and Ownership Between 1994-2005," NBER Working Papers 13775, National Bureau of Economic Research, Inc.
    4. Mas, Nuria, 2005. "Managed care and the safety net: More pain for the uninsured?," IESE Research Papers D/596, IESE Business School.

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