Use of the hospital in a randomized trial of prepaid care

Health maintenance organizations (HMOs) achieve their cost savings through lower rates of hospital admissions. To determine whether HMOs selectively avoid discretionary hospitalizations, medical records were reviewed from a randomized trial where families were assigned to either HMO or free-for-service care. Physicians who were blinded to system reviewed 244 medical records and judged the appropriateness both of the hospital setting and of the medical indications for hospitalization. The rate of discretionary surgery was lower in the HMO, while the rate of nondiscretionary surgery was equivalent in the two systems. For medical admissions, rates of discretionary and nondiscretionary admissions were lower in the HMO. There were no observable adverse effects on health from the lower rates of nondiscretionary hospitalization, either because the net effect on health was small or because the HMO substituted appropriate ambulatory services. We conclude that HMO reductions in hospitalization rates do not occur "across the board"; discretionary surgery is selectively avoided.