Current Issues in Pharmacoeconomics 2 ________________________________________________ __

HMOs for Medicare beneficiaries? There is substantial evidence to suggest that

Medicare* expenditures could be substantially reduced without loss of quality or benefits if there was involve­ment of health maintenance organisations (HMOs), maintains Dr Robert Giffin, the president of Health Care Strategy Associates, Inc. in the US.

The quality of care received by HMO patients is equal to, or superior to, that received by patients enrolled in fee-for-service plans. HMO enrollees are generally more satisfied with the care they receive.

How much can HMOs save? HMOs can reduce utilisation levels by up to 20-30%

compared with fee-for-service systems. However, these favourable impacts do not occur consistently. Current thinking indicates that a 'critical mass' of market penetration by HMOs is needed. as has occurred in California and Minnesota, for significant hospital cost reductions to be realised.

The common practice in HMOs of shadow pricing (pricing just below fee-for-service premiums) can actually drive premiums upward, notes Dr Giffin. To realise the cost saving potentials HMOs, healthcare purchasers such as large employers need to manage risk and introduce competitive demands on HMOs. Practices such as benchmarking premium contributions to low-cost healthcare plans, or enrolling all employees into managed-care plans can introduce competition and control for selection bias.

Potential for Medicare The Medicare Risk programme has been successful

in bringing quality low-cost medical care to Medicare beneficiaries, but has only enrolled around 7% of the total Medicare population. A substantial increase in the number of enrollees would result in immediate savings by reducing the average per capita cost.

However, as long as the Medicare payment system is linked to fee-for-service prices, HMOs will not need to reduce prices in order to survive, says Dr Giffin. * the US Federal Govemmelll S healthcare programme for the elderly Giffin R. Can managed care save Medicare? Achieving high quality and low costs through managed care. Managed Care Quarterly 4: 12-28. 1996

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PharmacoEconomics & Ou1comes News 11 Jan 1"7 No. 95 1173-5503197/0095-00021$01.00" Adl. International Limited 11187. All rights ~