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John B. Bulger, DO; Jay H. Shubrook, DO; and Richard Snow, DO, MPH
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Preventable Hospitalizations and Medicare Managed Care: A Small Area Analysis
Jayasree Basu, PhD
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Preventable Hospitalizations and Medicare Managed Care: A Small Area Analysis

Jayasree Basu, PhD
Despite increased enrollment, the role of Medicare managed care in explaining declines in preventable hospitalization rates diminished over time.
Objective: To examine the association between preventable hospitalization rates and proportions of managed care enrollment at the primary care service area level.

Study Design: Multivariate design.

Methods: The study used the Healthcare Cost and Utilization Project State Inpatient Data from the Agency for Healthcare Research and Quality for Arizona, Massachusetts, and New York for the years 1995 and 2005 to examine the association between preventable hospitalization rates and proportions of managed care enrollment in 1995 and 2005. The period 1995-2005 was marked by the beginning and end of several legislative and policy initiatives causing changes in elderly hospitalization patterns as well as Medicare managed care enrollment patterns. The study used ordinary least squares regressions, adjusting for heteroscedasticity. A cross-sectional analysis was used to examine the association each year. A pooled sample analysis over years tested the changes in relative contributions of managed care over time.

Results: Preventable hospitalization rates were inversely associated with Medicare managed enrollment in both years. This association was, however, found to be weaker in 2005 than in 1995. The decline in contributions of managed care was also statistically significant.

Conclusions: Despite increased managed care enrollment, the role of Medicare managed care in explaining declines in preventable hospitalization rates diminished over time. The results could be explained by the growth of private fee-for-service types of managed care plans and the resultant decline in emphasis on care coordination relative to health maintenance organization plans.

(Am J Manag Care. 2012;18(8):e280-e290)
Small area analysis was used to examine the association between preventable hospitalization rates and proportions of Medicare managed care enrollment.

  • Although health maintenance organization models of managed care predicted declines in preventable hospitalization rates among the elderly, the association was found to be weaker as incentive systems changed and other managed care products, such as private fee-for-service plans, increased in prevalence after 2003.

  •  The study’s findings are important in light of a growing debate on Medicare managed care plan performance in recent years.
Analysis of preventable hospitalizations has become an established tool for assessment of primary care access and quality. Alternatively known as ambulatory care sensitive condition (ACSC) admissions, a lower rate of preventable hospitalization has become an accepted indicator of access to quality primary care. Previous research found Medicare managed care to be inversely related to preventable hospitalization rates. In this study, we examine this association in 2 time periods, 1995 and 2005, in 3 US states: Arizona, Massachusetts, and New York. The period 1995-2005 is particularly significant in terms of changes in hospitalization patterns for the elderly. Two important pieces of Medicare legislation, the Balanced Budget Act (BBA) of 1997 and Medicare Modernization Act (MMA) of 2003, became effective during this period, both affecting elderly patients’ use of preventive services. While Medicare managed care enrollment faced a setback in the post-BBA period, it soared in the post-MMA period as a result of changes in payment structure. A major part of the increase occurred in private fee-for-service managed care (PFFS) plans. These PFFS plans resembled the fee-for-service (FFS) plans and provided fewer incentives for care coordination than health maintenance organizations (HMOs), a model that dominated the market in the earlier years. Studying the association of Medicare managed care with preventable hospitalization rates in the 2 time periods enables examination of how these changes affected the beneficiaries’ access to quality primary care.


Managed care plans are defined as health insurance plan types that actively use utilization controls and care management practices, in contrast to traditional indemnity plans, which pay providers on an FFS basis.1 Although private managed care health plans have been an option for Medicare beneficiaries for many years, legislative changes have been enacted to encourage greater plan and beneficiary participation. The first major changes were mandated in the BBA of 1997, which created the Medicare+ Choice program. In the MMA of 2003, the Medicare+ Choice program was replaced with the Medicare Advantage program, modifying the determination of plan payments and expanding the types of private health plans eligible to participate.

Under Medicare Advantage, many types of health plans are eligible to participate in Medicare. The types of plans that had been available include HMOs, preferred provider organizations, PFFS plans, and medical savings account plans. Regional preferred provider organizations and special needs plans are new options. With the exception of PFFS plans and medical savings account plans, Medicare Advantage plans must now offer at least 1 benefit package that includes prescription drug coverage (Medicare Part D) in each area they serve.2

Although the HMOs were the most dominant form of managed care up until at least 2005, PFFS plans saw very rapid growth between 2001 and 2005. PFFS enrollment and plan availability have grown rapidly since enactment of the MMA and implementation of the Part D Medicare drug benefit.3 The number of PFFS enrollees grew from 25,587 to 208,990 between 2003 and 2005.4 An analysis of the Centers for Medicare & Medicaid Services Geographic Service Area file finds that the HMO enrollment dropped by 10%, while PFFS enrollment increased by almost 8-fold between 2001 and 2005. Although HMOs continued to dominate the market, their market share dropped from 99% to 94% within the 5-year period, while the market share of PFFS plans increased from 0.3% to 2.7%. PFFS plans most closely resemble a privately administered version of traditional FFS Medicare and share few characteristics with Medicare managed care plans such as HMOs and preferred provider organizations.3 It has been noted that the firms that offer PFFS plans are not required to provide a plan with a Medicare Part D drug benefit, nor are they required to have quality and utilization review and reporting procedures. Moreover, unlike other Medicare Advantage plans such as HMOs and preferred provider organizations, PFFS plans are unable to guarantee access to physicians and other providers for their enrollees, and have limited ability to coordinate or to manage care.4,5

Because of the multitude of changes in the socioeconomic and policy environment, 1995-2005 is an eventful time span. That period marks the pre-post era in which 2 pieces of Medicare legislation were passed, both significantly impacting Medicare managed care enrollment. The year 1995 marks the early stage of Medicare managed care growth when Medicare managed care market composition was dominated by HMOs, the strongest form of care management along the spectrum of managed care plans. The year 2005 represents a strategic time when the managed care markets were still dominated by HMOs, but other managed care products also saw rapid growth. The study uses these 2 critical years to test the association of Medicare managed care with preventable hospitalizations, with the purposes of highlighting the effect of care coordination provided in Medicare managed care plans and identifying changes in this effect over time.

Objectives and Conceptual Hypothesis

A growing body of literature on the elderly has found that Medicare beneficiaries in managed care receive more preventive services and have better outcomes than their FFS counterparts.1,6-9 In general, managed care plans can directly reduce preventable hospitalizations by making more primary and preventive services available to their constituents. Accordingly, a lower rate of preventable hospitalization was proposed as an indicator of better health plan performance.10 Although the role of managed care market penetration and the spillover effects on other providers could be mixed, previous research using individual discharge data found Medicare managed care enrollment to be associated with less use of hospitals for preventable conditions.1,9

This study departs from earlier approaches that examined individual-level discharge data to examine the likelihood of preventable hospitalization associated with Medicare managed care enrollment. In this study, we developed an area-level estimate of preventable hospitalization rates and examined variations in these rates. The unit of analysis is primary care service areas (PCSAs), which are small primary care market areas, defined by FFS Medicare patient flow to physician offices.11 The factors underlying variations in admission rates across small areas have been the focus of many scientific and policy-related studies.12-16 Although a few prior studies and reports17,18 examined the national trends in preventable hospitalization rates, no studies examined the small area variation in these rates and the factors that contributed to changes in preventable hospitalization rates over time.

This study investigated the following questions:

1. Whether and how the proportions of Medicare managed care enrollment in a market area were associated with rates of preventable hospitalizations at each cross-section of time.

2. Whether and how the marginal contributions of managed care to the preventable hospitalization rates changed over time.

The following hypotheses were made to address these research questions: (1) The proportions of Medicare managed care enrollment will be negatively associated with preventable hospitalization rates in an area at each point in time in our study. (2) However, a decline in the marginal contributions of Medicare managed care enrollment to the preventable hospitalization rates is anticipated over time.

The first hypothesis is consistent with the conceptual framework and findings reported above. It is expected that the managed care climate in which the elderly seek care can support greater accessibility of primary care, which subsequently could affect preventable hospitalization rates among elderly patients. The second hypothesis follows from an analysis of changes in the elderly managed care market during 1995-2005 as described in the Background section.

Several changes occurred in the elderly managed care market during the period of study that could impact the preventable hospitalization rates: (1) the enrollment in staff/ group model HMOs peaked in 1995-1996 and commercial premiums actually went down in absolute value, which could have lowered Medicare preventable admissions in that year; (2) after the 1997 BBA legislation, some plans dropped out of market areas, and one would expect preventable admissions to increase if other factors held constant; (3) the big growth in Medicare Advantage enrollment came after the 2003 MMA legislation, but that was mostly growth in PFFS Medicare Advantage plans, which had less stringent controls on inpatient utilization and less emphasis than HMO models on care coordination and care management.3-5 Thus, perhaps the bulk of PFFS enrollment came from FFS Medicare. If so, then PFFS plans would have to have inpatient utilization controls that only were marginally better than FFS Medicare in order to generate a downward trend. On the other hand, the Medicare HMO plans in 1995 were probably more organized and effective in delivering primary care.

Hypotheses About Covariates

The study uses a multivariate model to test main hypotheses, using covariates based on the past research concerned with ACSC or preventable hospitalizations.13,19-21 Some of the factors affecting the demand for outpatient care, and hence associated with the hospitalization for preventable conditions, include poverty, education level, public and private insurance,22,23 and disease severity.24 A number of these determinants could confound with race and ethnicity. The supply factors associated with preventable hospitalizations are inpatient bed capacity,20,25 supplies of primary care physicians, and physician practice patterns.19,26 Area characteristics such as the proportions of elderly patients living in poverty or in a rural location are expected to exert important influences on increased rates of preventable admissions.13,27 Studies have found the degree of remoteness and rural residence to be positively associated28 and population density to be negatively associated29 with preventable admissions.



The study used hospital discharge data (Healthcare Cost and Utilization Project State Inpatient Data from the Agency for Healthcare Research and Quality) for Arizona, Massachusetts, and New York for the years 1995 and 2005.30 Many of the states with high managed care penetration in 2005 (eg, California) either did not have or did not report hospital discharge data on Medicare HMOs back in 1995. The criteria used in selecting the 3 states included the availability of Medicare managed care data for both 1995 and 2005 in the Healthcare Cost and Utilization Project State Inpatient Data, as well as the representativeness of these 3 states for the entire US population and market conditions.

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