Magazine article Drug Topics

Health Cost Gaps Speeding Up Managed Care

Magazine article Drug Topics

Health Cost Gaps Speeding Up Managed Care

Article excerpt

Politicians are history when it comes to formulating policy for national health-care reform, but reform is still very alive, according to Kenneth S. Abramowitz, health-care analyst at Sanford C. Bernstein Co., the New York City research and money management firm.

Expect the marketplace itself to make the changes needed to satisfy this country's search for a more cost-efficient system, he told pharmacists at the American Pharmaceutical Association's annual meeting last month in Orlando, Fla. In fact, it's already moving in that direction.

The reason is simple, he said. The gap between fee-for-service costs and managed care costs is so wide--and it's widening--that it makes no sense for health-care payers not to switch to health maintenance organizations (HMOs) and preferred provider organizations (PPOs).

In 1994, for example, a typical insurance company or self-insured employer might have paid $1,925 per patient for a day in the hospital while it might have cost PPOs $1,250 and HMOs $1,050, said Abramowitz. This isn't a stable situation," he emphasized. "You can't have gaps like that between wholesale and retail without expecting everybody to eventually buy wholesale."

Payers are recognizing that HMOs are providing "better value" than traditional insurance firms, Abramowitz added. He noted that the typical HMO will be raising its rates by 1% this year and 0% next year. By contrast, the typical insurance company plans to boost its rates by 10% each year.

No wonder more people are joining HMOs, said Abramowitz. The HMO population, now 55 million strong, will reach 100 million by 1999, he predicted, and "in five years after that, it will be 150 million, then 200 million and 250 million, and that will be the end of the insurance industry as we know it."

Zeroing in on the Medicare population, Abramowitz noted that currently 89% are covered by fee-for-service managed plans, 1% by PPOs, and 10% by HMOs. …

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