The Changing Effect of HMO Market Structure: An Analysis of Penetration, Concentration, and Ownership Between 1994-2005

Abstract

We analyze the role of three aspects of HMO market structure --HMO penetration, HMO plan concentration, and HMO for-profit share on explaining hospital cost and revenue growth during the HMO expansion period (1994)(1995)(1996)(1997)(1998)(1999) and backlash period (2000)(2001)(2002)(2003)(2004)(2005). We find that HMO penetration effects differ over time: a 10 percentage point increase in HMO enrollment leads to 2.5 percent reduction in cost and revenues in the expansion period but only 0.4-1 percent reduction in the backlash period. Furthermore, this HMO backlash effect can be attributed to HMO dis-enrollment as well as the changing nature of HMO product. We find that revenue increases at a slower rate (by about 5 percent) in markets with relatively concentrated HMO markets power and more competitive hospital markets. Finally, increased for-profit HMO presence is associated with smaller cost and revenue growth, and the effect differs between low and high penetration markets.

A Bargain at Twice the Price? California Hospital Prices in the New Millennium

“…Dranove et al (2008) find that the association between concentration and price was positive in the 1990s, strongly positive around the turn of the millennium, but substantially weaker by 2003. In related work, Shen et al (2008) find that the ability of HMOs to contain costs was significantly weakened during the managed care backlash period of -2005. White et al (2004 provide anecdotal evidence of a shift in power with respect to contract negotiation between hospitals and insurance providers, particularly HMOs.…”