And the bad news?

Managed care brings down traditional Medicare spending

THERE GOES THE NEIGHBORHOOD. WHEN managed care moves into an area, health care spending appears to drop for Medicare beneficiaries served by the traditional fee-for-service program, according to a study published in the February 3 issue of the Journal of the American Medical Association.

The finding is surprising considering that, unlike managed care, traditional Medicare pays fixed prices for services and does not seek to improve the cost-efficiency of care.

Researcher Laurence C. Baker, PhD, of Stanford University in Stanford, California, looked at the relationship between increasing market penetration by managed care organizations--specifically HMOs--and fee-for-service Medicare payments.

In examining health care spending data, Baker found that the percentage of fee-for-service expenditures paid by Medicare Part A (hospital care) and Medicare Part B (outpatient care) decreased as the market share of managed care organizations increased. The study covered 1990 to 1994, when the average HMO enrollment increased nationally from 15 to 21 percent.

While not conclusive, the findings "could lead one to believe that the volume of services decreased, either in number or intensity," Baker says.

He offers several explanations for the findings. "Managed care may ultimately drive all providers in an area to be more 'managed-care like' in their practice" he says. "Or managed care may contribute to the flow of information in a way that helps physicians find new ways of practicing. Or it may be that physicians are bombarded with so many different insurance companies that they develop a unified way to practice that affects all patients."

In future studies, Baker plans to look at such factors as the volume of services and patient outcomes.

The pressing question is whether the decrease in health care spending is in patients' best interest, a research undertaking Baker believes should be tackled on a diagnosis-by-diagnosis basis. "The goal would be to figure out what is useful about managed care and what is not."