Intended and Unintended Consequences of HMO Cost Containment Strategies: Results from the Managed Care Outcomes Project

Authors: Horn, S.; Sharkey, P.; Tracy, D.; Horn, C.; James, B.; Goodwin, F.

In examining the various cost-containment strategies typically used by managed care organizations, the study found that some measures reduced the use of health care services as expected. However, evaluation of the use of restrictive formularies as a method of containing costs yielded what many would consider unexpected results.

For patients with similar severity of illness, the study found a common pattern for each of the diseases studied. In general, with greater limitation of physician’s choice of prescription medications, use of health care services increased.  In other words, with increased formulary restrictions, researchers found ore patient visits to physicians, more emergency room visits, and more hospitalizations, all of which would likely lead to an increase in medical costs. According to the study, even the number and total cost of prescriptions increased.

In fact, when formularies were severely restricted, use of health care services was often double that observed with no formulary restriction. This strong relationship between restrictiveness and resource use was found for all five study diseases and for all levels of illness severity. The HMO site with no formulary – that is, open access to all medications – almost always had the lowest level of health care utilization.

The researchers investigated whether the apparent effects of formulary restrictiveness on the use of health care factors might have been related to some factors at the HMO sites other than, or in addition to, those restrictions. Among the possible factors considered were other pharmacy management practices, such as generic substitution, and other cost-containment strategies typically used by HMOs. The researchers found that increased formulary restrictiveness was still strongly and significantly associated with increased use of services after controlling for these other factors.

In summary, the study author said, “Greater formulary restrictions were associated with increased use of health care services, and therefore, greater costs. Also, limiting drugs may be detrimental to patients’ health due to suboptimal or failed therapy. From the patients’ perspective, increased use of health care services means greater inconvenience and longer periods of illness and discomfort.”

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