How Health Maintenance Organizations Control Costs

HRD-82-31: Published: Dec 29, 1981. Publicly Released: Dec 29, 1981.

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GAO evaluated health maintenance organizations' (HMO's) attempts to reduce health care costs. GAO analyzed the results of a questionnaire sent to members and former members of 12 HMO's concerning their satisfaction with health services and compared the HMO premiums with those that a health insurance company would charge for the same benefits.

Information on the procedures and practices the 12 HMO's used to reduce health care costs should be useful to the Office of Health Maintenance Organizations in providing technical advice and assistance to HMO's. In general, the HMO's used various techniques intended to: (1) control hospital admissions and lengths of stay; (2) limit the use of hospital emergency rooms to cases requiring such care; (3) provide incentives to physicians to contain costs; and (4) foster efficient and effective management practices. Obviously, not all of the identified procedures and practices could or should be adopted by every HMO. However, GAO believes that each procedure or practice identified has some potential for reducing costs.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of HHS should direct the Office of Health Maintenance Organizations to communicate to all federally qualified HMO's the utilization and cost control techniques identified. They should be presented as a means to assist financially troubled and beginning HMO's in identifying techniques to help control hospital utilization and reduce health care costs. Older, financially sound HMO's should find them helpful in identifying methods to further reduce health care costs.

    Agency Affected: Department of Health and Human Services


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