Decline in Hospital Utilization and Cost Inflation Under Managed Care in California

OBJECTIVE: To measure the impact of health maintenance organizations (HMOs) on hospital capacity, utilization, and expenditures between 1983 and 1993. DESIGN: Multivariate regression analysis. SETTING: Private nonprofit and for-profit hospitals in California with 25 or more beds. PATIENTS: Patient discharge abstract data were used to measure growth of HMO penetration of local hospital markets. INTERVENTIONS: None. MAIN OUTCOME MEASURES: Hospital closures, changes in bed capacity, changes in acute care admissions and length of stay, psychiatric inpatient days, subacute inpatient days, inpatient and outpatient surgical procedures, ambulatory patient visits, and hospital expenditures. RESULTS: Between 1983 and 1993 hospital expenditures grew 44% less rapidly in markets with high HMO penetration than in markets with low HMO penetration. Of this, 28% was due to reductions in the volume and mix of services, 6% was due to reductions in bed capacity, and 10% was due to changes in the intensity of services provided. Health maintenance organizations accelerated the substitution of outpatient for inpatient surgery, the shift from acute to subacute inpatient days, and the reduction of psychiatric hospitalization. CONCLUSION: Managed care is shifting the acute hospital from the center toward the periphery of the health care system.