Health Care.

Alan M. Garber [*]

Managed care has brought with it numerous changes in health care delivery and financing. These changes, and the shifts in incentives that they create, can have important effects on the structure of markets for health care delivery and ultimately for the types of health care delivered, its costs, and outcomes. Most analyses of managed care compare HMOs and other managed care plans to non-managed care plans. But as managed care becomes more prevalent, its impact on the structure and functioning of the health care system as a whole may become more important than differences across plans.

In a body of work, Laurence C. Baker thus asks how managed care can bring about widespread effects on health care markets and health care delivery. In two papers on health care spending, [1] Baker finds that areas with high levels of HMO market share spent less on fee-for-service Medicare beneficiaries. Since prices for Medicare-covered services largely are fixed by regulation under Medicare's Prospective Payment System and physician fee schedule, the lower expenditures probably reflect reductions in the intensity of services that Medicare patients receive in areas with heavy penetration of managed care. Furthermore, because the patients studied were covered by the traditional fee-for-service Medicare program, the fact that their care appears to be influenced by the presence of managed care plans suggests that the managed care system can have important effects on the performance of the entire health care system.

Changes in health care spending lead to questions about the mechanisms by which managed care may affect expenditures on and outcomes of care. In more recent work, Baker and Martin L. Brown of the National Cancer Institute report [2] that areas with high HMO market shares saw consolidation in mammography facilities through the early 1990s. In other words, higher market share areas had fewer mammography providers, each doing higher volumes. Because there are significant economies of scale in providing mammography, consolidation is associated with reductions in the cost and often the price of mammograms. But consolidation also could harm patients if it made it more difficult to obtain the procedure. To determine whether this occurred, Baker and Brown study cancer diagnoses and mortality rates. Although they find that waiting times for appointments were sometimes longer in markets with greater consolidation, they also find no evidence that cancers were diagnosed at later (and more severe) stages, or that mortali ty rates were higher, in such markets.