A qualitative assessment of the Medicare prospective payment system

Health maintenance organizations: just what the doctor ordered?

Following its recent reorganisation of the management of the hospital sector of the NHS, the Government is currently engaged in a review of the primary health care sector. Certain of its proposals may be interpreted as suggesting movement towards a system modelled on American-style Health Maintenance Organizations (HMOs). This article seeks to explore the context in which HMOs have developed, to assess their current performance and to evaluate their potential impact on the health delivery system. It suggests that they must be understood primarily in the context of initiatives aimed at reducing health expenditure, and finds that the cost advantages claimed for them are achieved through reduced utilization rather than through greater efficiency. It also argues that this reduced utilisation is likely to increase inequalities in health care.

Net returns, fiscal risks, and the optimal patient mix for a profit-maximizing hospital

As is well recognized, the provisions of PL98-21 not only transfer financial risks from the Medicare program to the hospital but also induce institutions to adjust the diagnostic mix of Medicare beneficiaries so as to maximize net income or minimize the net loss. This paper employs variation in the set of net returns as the sole measure of financial risk and develops a model that identifies the mix of beneficiaries that maximizes net income, subject to a given level of risk. The results indicate that the provisions of PL98-21 induce the institution to deny admission to elderly patients presenting conditions for which the net return is relatively low and the variance in the cost per case is large. Further, the paper suggests that the treatment of beneficiaries at a level commensurate with previous periods or the preferences of physicians may jeopardize the viability and solvency of Medicare-dependent hospitals.