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Managed care discounting: evidence from the MarketScan database
Avi Dor1, Siran M Koroukian, Michael Grossman
1Department of Economics, Weatherhead School of Management, Case Western Reserve University, Cleveland, OH 44128-4945, USA. avi.dor@weatherhead.case.edu
Inquiry : a Journal of Medical Care Organization, Provision and Financing
|September 29, 2004
Summary
Health maintenance organizations (HMOs) and preferred provider organizations (PPOs) offer real price discounts on hospital services. Point-of-service HMOs provide the largest savings on procedures like angioplasty.
Area of Science:
- Health economics
- Healthcare management
- Market analysis
Background:
- Health maintenance organizations (HMOs) and preferred provider organizations (PPOs) are key players in healthcare markets.
- Understanding their pricing strategies is crucial for analyzing healthcare costs.
Purpose of the Study:
- To examine price discounting by HMOs and PPOs in hospital service markets.
- To quantify the discounts offered by different managed care plans for specific procedures.
Main Methods:
- Empirical analysis of transaction prices for angioplasty procedures.
- Controlling for patient and procedure heterogeneity.
- Adjusting for market power of providers.
Main Results:
- Angioplasty prices are 8% lower for PPOs compared to fee-for-service plans.
- Point-of-service HMOs achieve a 24% discount on angioplasty prices.
- Managed care discounts are confirmed as substantial after controlling for various factors.
Conclusions:
- Managed care organizations, particularly point-of-service HMOs, effectively negotiate lower prices for hospital services.
- The findings support the notion that managed care leads to real cost savings in healthcare.
- Price discounting strategies vary significantly among different types of managed care plans.