Correspondence

Do Health Maintenance Organizations Control Costs or Shift Costs?

N Engl J Med 1993; 328:971April 1, 1993

Article

To the Editor:

In the current debate on health care, the performance of health maintenance organizations (HMOs) is often touted as showing how rising health care costs can be controlled while quality of care is ensured. As a practicing physician in Minneapolis, I wish to offer a dissenting view. Public data obtained from Health Information Resources of Minnesota suggest that, to a large extent, HMOs in Minneapolis achieve savings for their plans merely by shifting costs to patients covered by private insurance, not by actually containing the costs1. They do this by negotiating discounted rates with hospitals that may even exceed the discounts the same hospitals offer to the Medicare program.

Table 1Table 1Aggregate Data on Payer Mix and Discounting at Four Large Minneapolis Hospitals in 1990. summarizes data for four large Minneapolis hospitals in 1990. It lists the hospitals' income from Medicare, Medicaid, HMOs, and other types of payers (primarily private insurance plans and patients who pay directly) and gives aggregate figures for gross charges, discounts, and net revenues. The aggregate discounts for the HMOs were 37.6 percent on the basis of the hospitals' gross charges. By comparison, Medicare received an aggregate discount of 36.3 percent, Medicaid a discount of 54.1 percent, and other payers a discount of 3.2 percent. Discounts to HMOs accounted for nearly half the dollar value of all the discounts granted.

Other examples of cost shifting by HMOs are the selection of healthier patients,2 the negotiation of discounts with pharmaceutical companies, mandates that primary care physicians absorb some financial losses,3 and outright restrictions on certain services4. In addition, some patients at HMOs may pay for services outside their HMO system. Cost shifting is not the same thing as true cost saving.

Katherine Hiduchenko, M.D.
825 S. 8th St., Minneapolis, MN 55404

4 References

1. 1

   Health Information Resources of Minnesota. Minneapolis: Minnesota Hospital Association, January 1992.
   

2. 2

   Kushner J. HMOs: the failed promise. Surg Neurol 1989;31:120-121
   CrossRef | Web of Science | Medline

3. 3

   Hillman AL. Health maintenance organizations, financial incentives, and physicians' judgments. Ann Intern Med 1990;112:891-893
   Web of Science | Medline

4. 4

   Hopfensperger J. Move to HMOs has cut some services to poor people, critics of system claim. Star Tribune. November 11, 1991:1, 6.