Research That Matters (January 17 - 20, 2008)

Background and Purpose: An estimated 7.1 million elderly Medicare beneficiaries currently receive Medicare benefits from Medicare managed care (MMC) plans and public policy continues to encourage enrollment, particularly for lower income Medicare beneficiaries. Although proponents believe that managed care can provide similar quality at lower costs than traditional, fee-for-service (FFS) Medicare, there is a striking lack of empirical research knowledge about quality of care provided to MMC enrollees. This paper tests whether Medicare managed care enrollment reduces preventable hospitalizations and limits access to specialist care.

Methods: Inpatient hospitalization data from Arizona, Florida, New Jersey and New York from 1999 – 2004 are used. 25 percent of MMC enrollees lived in these four states during the study period. ICD-9-CM codes are used to identify preventable and referral-sensitive hospitalizations using Agency for Healthcare Research and Quality guidelines. These hospitalizations are widely used as indicators of quality of care. Fixed effects regression models corrected for selection bias are used.

Results: On average, Medicare managed care enrollment is associated with fewer referral-sensitive hospitalizations and fewer preventable hospitalizations. The magnitude of the reduction in the preventable hospitalization rate is about a third of a standard deviation larger than the reduction in referral-sensitive hospitalizations, suggesting that there are not major quality problems with Medicare Managed care compared to Fee-for-Service Medicare.

Conclusions and Implications: This research increases knowledge of the quality of outpatient care provided by MMC plans. These findings will inform beneficiaries and policymakers about any quality and cost trade-offs associated with contracting out Medicare benefit provision. Low-income Medicare beneficiaries are often encouraged to enroll in these plans, this work suggests that they do not need to accept lower quality of care in order to reduce out-of-pocket spending.