Differences in U.S. Hospital Service Utilization between Traditional Medicare and Medicare HMO Patients

Abstract

This study examines the differences between traditional U. S. Medicare and Medicare HMO Florida inpatient hospital utilization during the years 1992–1998, using nine high volume Diagnosis Related Groups. Utilization was measured by the number of ancillary services consumed, as well as the charges for those services. The analyses controlled for differences in utilization due to patient age, race, hospital size, year and market differences in hospital costs. Patient data were severity-adjusted and the analysis focused on the patients at the highest severity level. The study found that Medicare HMO patients with chronic diseases at the highest severity of illness level consumed significantly more services than traditional Medicare patients with the same chronic diseases. It was concluded that these Medicare HMO patients were either sicker (despite the severity adjustment) than the traditional Medicare patients and/or Medicare HMOs used different production processes than traditional Medicare, perhaps in order to minimize length of stay. Medicare HMO patients with acute illnesses at the highest severity level did not, in general, consume significantly more services than traditional Medicare patients at the same level of severity for the same diagnoses. The results imply that Medicare policy with regard to HMO expansion may not result in cost savings, and may, instead, result in higher costs if the proportion of the Medicare population hospitalized with chronic illnesses increases.