Are HMOs Bad for Health Maintenance?

This study examines the impact of Health Maintenance Organization (HMO) coverage on the provision of preventive medicine. We investigate whether any association reflects selection effects on the part of patients and/or physicians or a causal impact of managed care itself. Causal effects may occur on the supply side or the demand side. Using a large national database of Medicare and non-Medicare patients, we investigate these issues for eight common preventive medical procedures. We find that preventive care is substantially higher with HMO coverage than with traditional fee-for-service reimbursement. Our findings also suggest that the impact of HMOs on preventive medicine is a causal one, and does not merely reflect selection effects. Both supply-side (e.g. provider) and demand-side (e.g. patient) factors appear to play a role in the higher incidence of preventive care among HMO enrollees. Patient demand effects are stronger for simple treatments such as physicals, while supply-side effects seem to dominate for relatively complex preventive care procedures such as mammograms.