Differences in Inpatient Resource Use by Type of Health Plan

Approximately 50% of the annual increase in hospital costs comes from increased resource use per hospital admission. Health maintenance organizations (HMOs), given their fixed financial resources for patient care, have an incentive to constrain their enrollees' use of hospital resources. Our analysis investigates differences in length of stay, total charges, and the ancillary to total charge ratio for hospitalized patients in network HMOs, independent practice associations (IPAs), and fee-for-service (FFS) health plans in the Twin Cities from 1982 to 1984. Network HMO patients in several diagnostic categories are found to use significantly fewer resources, once hospitalized, than patients in either IPA or FFS plans. This difference may give network HMOs a competitive advantage in the market for health plans.