Managed care attempts to control health care expenditures by reducing the use of services on the assumption that some health services provided to consumers are unnecessary or inappropriate.

It is a matter of contention whether or not switching to managed care has reduced overall spending; if so, by how much; and whether managed care can reduce the growth rate of health care spending nationwide.

The Center for Health Policy Research of the American Medical Association reviewed nine major studies on the health spending impact of managed care and found that estimates of annual savings ranged from 2.3 percent to 9.6 percent. Reasons for the wide range of estimates included the diverse assumptions and guesses on which the studies were based.

For example, between 1994 and 1995 the Congressional Budget Office doubled its estimate from 3.9 percent to 7.8 percent of how much national health expenditures might be reduced if all health care were delivered by Health Maintenance Organizations (HMOs). According to the AMA, the doubling occurred when the CBO attempted to correct for various biases and flaws in its data and introduced new biases into its calculations.

Among the conclusions of the AMA study:

• The success of HMOs in reducing health expenditures relative to traditional fee-for-service medicine is due to reductions in hospital admissions and lengths of stay, but the effect on national health care spending is unclear.

• Even if HMOs reduce the level of spending when implemented, there is no evidence that managed care can reduce the growth rate of health expenditures.

• Data need to be collected over a period long enough for researchers to account for all the variables that affect spending; year-to-year comparisons of premium increases, which are cited as evidence of slower spending under managed care, are therefore meaningless.

• Assuming every American enrolled in a managed care organization, the best estimate of the additional, achievable one-time reduction in national health care spending is 3.9 percent.

Overall, the study concludes that the literature on managed care savings is "replete with poor analyses."

Source: David W. Emmons, "The Impact of Managed Care on National Health Spending: A Critical Review of the Literature," Discussion Paper 95-2, June 1995 (released April 1996), Center for Health Policy Research, American Medical Association, 515 North State Street, Chicago, IL 60610.