How Do Health-Maintenance Organizations Achieve Their “Savings”?

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Abstract
Health-maintenance organizations have been suggested as a way to stop spiraling medical costs. Although many of the arguments have been largely rhetorical, theoretical considerations suggest that the shift from fee for service to a fixed budget for the providers (physicians and hospitals) will result in substantial savings. Total costs (premium and out-of-pocket) for enrollees are 10 to 40 per cent lower than those for comparable people with health insurance. Enrollees in health-maintenance organizations have about as many ambulatory visits as comparison groups. Most of the cost differences are attributable to hospitalization rates about 30 per cent lower than those of conventionally insured populations. These lower hospitalization rates, in turn, are due almost entirely to lower admission rates; the average length of stay shows little difference. There is no evidence that health-maintenance organizations reduce admissions in discretionary or "unnecessary" categories; instead, the data suggest lower admission rates across the board. (N Engl J Med 298:1336–1343, 1978)