Managed care and hospital cost containment

Area of Science:

• Health economics
• Healthcare management
• Hospital administration

Background:

• The managed care backlash in the 1990s potentially altered its effectiveness in controlling healthcare costs.
• Understanding the relationship between managed care, market competition, and hospital costs is crucial for policy and practice.

Purpose of the Study:

• To assess the impact of managed care on hospital cost containment after the managed care backlash.
• To examine how hospital market competition influences the relationship between managed care penetration and cost growth.

Main Methods:

• Utilized data from California's Office of Statewide Health Planning and Development (OSHPD) for acute-care hospitals (1991-2001).
• Employed a long-differences analysis to compare cost growth before and after the managed care backlash.
• Analyzed the interaction between managed care penetration and market competitiveness.

Main Results:

• In the early 1990s, high managed care penetration in competitive markets was associated with lower hospital costs.
• Post-backlash, this association weakened; high managed care penetration no longer significantly reduced cost growth in competitive markets.
• Suggests a diminished synergistic effect between managed care and hospital competition.

Conclusions:

• The effectiveness of managed care in containing hospital costs, particularly in competitive markets, may have declined post-backlash.
• Policy and strategic approaches to cost containment may need to adapt to these evolving market dynamics.