HOW DO HMOS ACHIEVE SAVINGS - THE EFFECTIVENESS OF ONE ORGANIZATIONS STRATEGIES

Objective. To examine how a group practice used organizational strateg ies rather than provider-level incentives to achieve savings for healt h maintenance organization (HMO) compared to fee-for-service (FFS) pat ients. Data Sources/Study setting A large group practice with a group model HMO also treating FFS patients. Data sources were all patient en counter records, demographic files, and clinic records covering 3.5 ye ars (1986-1989). The clinic's procedures to record services and charge s were identical for FFS and HMO patients. All FFS and HMO patients un der age 65 who received any outpatient services during approximately 1 00,000 episodes of the seven study illnesses were eligible. Study Desi gn. Using an explanatory case design, we first compared HMO and FFS ra tes of resource utilization, in standardized dollars, which measured t he impact of organizational strategies to influence patient and provid er behavior. We then examined the effect of HMO insurance and organiza tional measures to explain total outpatient use. Key variables were st andardized charges for all outpatient services and the HMO's strategie s. Principal Findings. Patient and provider behavior responded to orga nizational strategies designed to achieve savings for HMO patients; fo r instance, HMO patients used midlevel providers and generalists more often and ER and specialists less often. Overall HMO savings, adjusted for case mix, were explained by the specialty of the physicians the p atients first visited and appeared to affect patients with average hea lth more than others. Conclusion. Organizational strategies, without r esort to differential financial incentives to each provider, resulted in lower rates of outpatient services for HMO patients. Savings from o utpatient use, especially for common diseases that rarely require hosp italization, can be substantial.