CONTEXT: Managed care has the potential to transform fundamentally the structure and functioning of the entire health care system, including the care provided to patients who are not enrolled in managed care plans. OBJECTIVE: To determine whether increasing health maintenance organization (HMO) market share is associated with decreased expenditures for the care of patients covered by Medicare's traditional fee-for-service plan, a group cared for well outside the boundaries of managed care. DESIGN AND SETTING: Data from the Health Care Financing Administration were used to compare expenditures for the care of Medicare fee-for-service beneficiaries for 802 market areas, representing the entire United States, for 1990 to 1994. These data were matched with data on system-wide (Medicare and non-Medicare) HMO market share in these areas. PATIENTS: All fee-for-service Medicare beneficiaries (1990-1994) except for those with end-stage renal disease. MAIN OUTCOME MEASURE: Average fee-for-service expenditure per fee-for-service Medicare beneficiary by market area. RESULTS: In a regression model, increases in system-wide HMO market share were associated with declines in both Part A and Part B fee-for-service expenditures per Medicare beneficiary (P<.001). Increases from 10% market share to 20% market share were associated with 2.0% decreases in Part A fee-for-service expenditures and 1.5% decreases in Part B fee-for-service expenditures. CONCLUSIONS: Managed care can have widespread effects on the health care system. Health care for individuals who are not covered by managed care organizations can be influenced by the presence of managed care. Lower expenditures in areas with high HMO market shares may indicate that traditional Medicare beneficiaries in areas with high market shares received fewer or less intensive services than traditional Medicare beneficiaries in other areas.
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