The embattled HMO industry got some good news last week: Three new nationwide studies show that managed care continues to hold down medical costs, and one even ties those results to improved quality.
A study by the KPMG Peat Marwick consulting firm showed that hospital costs in high managed-care markets were about 11% below the national average. Meanwhile, the study showed that "the presence of managed care has not resulted in higher mortality rates or complication rates. In fact, the risk-adjusted mortality rates in high managed-care markets were 5.25% below the national average."
"Clearly, managed care is driving hospital costs down without negatively impacting patient care," said Michael S. Hamilton, national director of KPMG's Health Care Segment.
Another study, by A. Foster Higgins, a national benefits consulting firm, showed that total spending for employer-sponsored health benefits rose a modest 2.1% in 1995, compared with a 1.1% drop in 1994. Higgins analysts said the figures indicate a flat trend in healthcare inflation.
A third study, by Towers Perrin, another benefits consulting firm, predicted that healthcare costs for large employers will increase at an average rate of 3% during 1996. For active employees, HMO costs will remain flat, while non-HMO costs will increase by 4%, Towers Perrin said.
KPMG's study classified the 50 largest U.S. cities into high, medium and low managed-care markets as defined by HMO penetration and other managed-care activities.
It found that costs are starting to inch back up in many high managed-care markets. That is because "most of the costs that have been eliminated have been excess layers," Hamilton said. "I'm not sure the marketplace has invented the solutions to go to the next level."
What is needed next is the "redesign of core business processes," such as patient registration, he added. But the biggest savings will come when physicians are truly engaged in developing and following clinical pathways, Hamilton said.
Foster Higgins said the low inflation in employer health benefit costs results from enrollment shifts to managed-care plans-which now cover more than seven in 10 workers-increased competition among health plans, and a low increase in the overall medical Consumer Price Index.
For the first time in the survey's 10-year history, the average cost of HMO coverage declined. It fell 3.8%, led by an 11.9% drop in HMO costs among small employers.
But retiree costs at large companies rose 9.5% in 1995, Foster Higgins said. The result was fewer employers offering coverage to early retirees-41% vs. 43% in 1994. The number offering coverage to Medicare-eligible retirees fell to 35% from 40%.
To control costs, the challenge to employers will be funneling retirees into managed care. Only 15% of early retirees are in HMOs, compared with 31% of active employees. Only 31% of Medicare-eligible retirees are in some form of managed care, Foster Higgins said.
Towers Perrin forecasts that healthcare costs for retirees will generally increase 3% in 1996; but for Medicare-eligible retirees in HMOs, those costs will decrease 3%.
William J. Falk, a Towers Perrin principal, cautioned that there is a wide variation in individual HMO costs because of plan design, geography and demographics.