Segmentation of Hospital Markets: Where Do HMO Enrollees Get Care?

Health Affairs

Volumn 16, Issue 6, 1997, Pages 181-192

  Escarce, José J ^a   Shea, Judy A ^b   Chen, Wei ^b  

^a RAND CORPORATION   (United States)

^b NONE

Author keywords

[No Author keywords available]

Indexed keywords

ARTICLE; CLINICAL TRIAL; CORONARY ARTERY BYPASS GRAFT; HEALTH CARE COST; HEALTH CARE QUALITY; HEALTH MAINTENANCE ORGANIZATION; HOSPITAL; HOSPITAL MANAGEMENT; HUMAN; MORTALITY; MULTICENTER STUDY; ORGANIZATION; STANDARD; UNITED STATES; UTILIZATION REVIEW;

CORONARY ARTERY BYPASS; DECISION MAKING, ORGANIZATIONAL; FLORIDA; HEALTH CARE SECTOR; HEALTH MAINTENANCE ORGANIZATIONS; HOSPITAL MORTALITY; HOSPITALS; HUMANS; PRODUCT LINE MANAGEMENT; QUALITY OF HEALTH CARE;

EID: 0031263596     PISSN: 02782715     EISSN: None     Source Type: Journal    
DOI: 10.1377/hlthaff.16.6.181     Document Type: Article

References (48)

1. HMO refers to a health plan that offers comprehensive health care by an established panel of providers to an enrolled population on a prepaid basis.
2. H.S. Luft et al., "The Role of Specialized Clinical Services in Competition among Hospitals," Inquiry 23, no. 1 (1986): 83-94; and J.C. Robinson, "Hospital Quality Competition and the Economics of Imperfect Information," The Milbank Quarterly 66, no. 3 (1988): 465-481.
3. H.S. Luft et al., "The Role of Specialized Clinical Services in Competition among Hospitals," Inquiry 23, no. 1 (1986): 83-94; and J.C. Robinson, "Hospital Quality Competition and the Economics of Imperfect Information," The Milbank Quarterly 66, no. 3 (1988): 465-481.
4. R. Feldman et al., "The Effects of HMOs on the Creation of Competitive Markets for Hospital Services," Journal of Health Economics 9, no. 2 (1990): 207-220.
5. J. Zwanziger and G.A. Melnick, "The Effects of Hospital Competition and the Medicare PPS Program on Hospital Cost Behavior in California," Journal of Health Economics 7, no. 4 (1988): 301-320; G.A. Melnick et al., "The Effects of Market Structure and Bargaining Position on Hospital Prices," Journal of Health Economics 11, no. 3 (1992): 217-233; D. Dranove et al., "Price and Concentration in Hospital Markets: The Switch from Patient-Driven to Payer-Driven Competition," Journal of Law and Economics 36, no. 1 (1993): 179-204; J. Zwanziger, G.A. Melnick, and A. Bamezai, "Costs and Price Competition in California Hospitals, 1980-1990," Health Affairs (Fall 1994): 118-126; and J. Gruber, "The Effect of Competitive Pressure on Charity: Hospital Responses to Price Shopping in California," Journal of Health Economics 13, no. 2 (1994): 183-212.
6. J. Zwanziger and G.A. Melnick, "The Effects of Hospital Competition and the Medicare PPS Program on Hospital Cost Behavior in California," Journal of Health Economics 7, no. 4 (1988): 301-320; G.A. Melnick et al., "The Effects of Market Structure and Bargaining Position on Hospital Prices," Journal of Health Economics 11, no. 3 (1992): 217-233; D. Dranove et al., "Price and Concentration in Hospital Markets: The Switch from Patient-Driven to Payer-Driven Competition," Journal of Law and Economics 36, no. 1 (1993): 179-204; J. Zwanziger, G.A. Melnick, and A. Bamezai, "Costs and Price Competition in California Hospitals, 1980-1990," Health Affairs (Fall 1994): 118-126; and J. Gruber, "The Effect of Competitive Pressure on Charity: Hospital Responses to Price Shopping in California," Journal of Health Economics 13, no. 2 (1994): 183-212.
7. J. Zwanziger and G.A. Melnick, "The Effects of Hospital Competition and the Medicare PPS Program on Hospital Cost Behavior in California," Journal of Health Economics 7, no. 4 (1988): 301-320; G.A. Melnick et al., "The Effects of Market Structure and Bargaining Position on Hospital Prices," Journal of Health Economics 11, no. 3 (1992): 217-233; D. Dranove et al., "Price and Concentration in Hospital Markets: The Switch from Patient-Driven to Payer-Driven Competition," Journal of Law and Economics 36, no. 1 (1993): 179-204; J. Zwanziger, G.A. Melnick, and A. Bamezai, "Costs and Price Competition in California Hospitals, 1980-1990," Health Affairs (Fall 1994): 118-126; and J. Gruber, "The Effect of Competitive Pressure on Charity: Hospital Responses to Price Shopping in California," Journal of Health Economics 13, no. 2 (1994): 183-212.
8. J. Zwanziger and G.A. Melnick, "The Effects of Hospital Competition and the Medicare PPS Program on Hospital Cost Behavior in California," Journal of Health Economics 7, no. 4 (1988): 301-320; G.A. Melnick et al., "The Effects of Market Structure and Bargaining Position on Hospital Prices," Journal of Health Economics 11, no. 3 (1992): 217-233; D. Dranove et al., "Price and Concentration in Hospital Markets: The Switch from Patient-Driven to Payer-Driven Competition," Journal of Law and Economics 36, no. 1 (1993): 179-204; J. Zwanziger, G.A. Melnick, and A. Bamezai, "Costs and Price Competition in California Hospitals, 1980-1990," Health Affairs (Fall 1994): 118-126; and J. Gruber, "The Effect of Competitive Pressure on Charity: Hospital Responses to Price Shopping in California," Journal of Health Economics 13, no. 2 (1994): 183-212.
9. J. Zwanziger and G.A. Melnick, "The Effects of Hospital Competition and the Medicare PPS Program on Hospital Cost Behavior in California," Journal of Health Economics 7, no. 4 (1988): 301-320; G.A. Melnick et al., "The Effects of Market Structure and Bargaining Position on Hospital Prices," Journal of Health Economics 11, no. 3 (1992): 217-233; D. Dranove et al., "Price and Concentration in Hospital Markets: The Switch from Patient-Driven to Payer-Driven Competition," Journal of Law and Economics 36, no. 1 (1993): 179-204; J. Zwanziger, G.A. Melnick, and A. Bamezai, "Costs and Price Competition in California Hospitals, 1980-1990," Health Affairs (Fall 1994): 118-126; and J. Gruber, "The Effect of Competitive Pressure on Charity: Hospital Responses to Price Shopping in California," Journal of Health Economics 13, no. 2 (1994): 183-212.
10. R. Feldman et al., "Contracts between Hospitals and Health Maintenance Organizations," Health Care Management Review 15, no. 1 (1990): 47-60;
11. J.E. Kralewski et al., "Factors Related to the Provision of Hospital Discounts for HMO Inpatients," Health Services Research 27, no. 2 (1992): 133-153; and
12. K.A. Schulman et al., "Quality Assessment in Contracting for Tertiary Care Services by HMOs: A Case Study of Three Markets," Joint Commission Journal on Quality Improvement 23, no. 2 (1997): 117-127.
13. Feldman et al., "Contracts between Hospitals and Health Maintenance Organizations;" and Schulman et al., "Quality Assessment in Contracting for Tertiary Care Services by HMOs."
14. Feldman et al., "Contracts between Hospitals and Health Maintenance Organizations;" and Schulman et al., "Quality Assessment in Contracting for Tertiary Care Services by HMOs."
15. E.L. Hannan et al., "Improving the Outcomes of Coronary Artery Bypass Surgery in New York State," Journal of the American Medical Association 271, no. 10 (1994): 761-766; and G.T. O'Connor et al., "A Regional Intervention to Improve Hospital Mortality Associated with Coronary Artery Bypass Graft Surgery," Journal of the American Medical Association 275, no. 11 (1996): 841-846.
16. E.L. Hannan et al., "Improving the Outcomes of Coronary Artery Bypass Surgery in New York State," Journal of the American Medical Association 271, no. 10 (1994): 761-766; and G.T. O'Connor et al., "A Regional Intervention to Improve Hospital Mortality Associated with Coronary Artery Bypass Graft Surgery," Journal of the American Medical Association 275, no. 11 (1996): 841-846.
17. H.S. Luft et al., "Should Operations Be Regionalized? The Empirical Relation between Surgical Volume and Mortality," The New England Journal of Medicine 301, no. 25 (1979): 1364-1369; J.A. Showstack et al., "Association of Volume with Outcome of Coronary Artery Bypass Graft Surgery," Journal of the American Medical Association 257, no. 6 (1987): 785-789; E.L. Hannan et al., "Investigation of the Relationship between Volume and Mortality for Surgical Procedures Performed in New York State Hospitals," Journal of the American Medical Association 262, no. 4 (1989): 503-510; and E.L. Hannan et al., "Coronary Artery Bypass Surgery: The Relationship between Inhospital Mortality Rate and Surgical Volume after Controlling for Clinical Risk Factors," Medical Care 29, no. 11 (1991): 1094-1107.
18. H.S. Luft et al., "Should Operations Be Regionalized? The Empirical Relation between Surgical Volume and Mortality," The New England Journal of Medicine 301, no. 25 (1979): 1364-1369; J.A. Showstack et al., "Association of Volume with Outcome of Coronary Artery Bypass Graft Surgery," Journal of the American Medical Association 257, no. 6 (1987): 785-789; E.L. Hannan et al., "Investigation of the Relationship between Volume and Mortality for Surgical Procedures Performed in New York State Hospitals," Journal of the American Medical Association 262, no. 4 (1989): 503-510; and E.L. Hannan et al., "Coronary Artery Bypass Surgery: The Relationship between Inhospital Mortality Rate and Surgical Volume after Controlling for Clinical Risk Factors," Medical Care 29, no. 11 (1991): 1094-1107.
19. H.S. Luft et al., "Should Operations Be Regionalized? The Empirical Relation between Surgical Volume and Mortality," The New England Journal of Medicine 301, no. 25 (1979): 1364-1369; J.A. Showstack et al., "Association of Volume with Outcome of Coronary Artery Bypass Graft Surgery," Journal of the American Medical Association 257, no. 6 (1987): 785-789; E.L. Hannan et al., "Investigation of the Relationship between Volume and Mortality for Surgical Procedures Performed in New York State Hospitals," Journal of the American Medical Association 262, no. 4 (1989): 503-510; and E.L. Hannan et al., "Coronary Artery Bypass Surgery: The Relationship between Inhospital Mortality Rate and Surgical Volume after Controlling for Clinical Risk Factors," Medical Care 29, no. 11 (1991): 1094-1107.
20. H.S. Luft et al., "Should Operations Be Regionalized? The Empirical Relation between Surgical Volume and Mortality," The New England Journal of Medicine 301, no. 25 (1979): 1364-1369; J.A. Showstack et al., "Association of Volume with Outcome of Coronary Artery Bypass Graft Surgery," Journal of the American Medical Association 257, no. 6 (1987): 785-789; E.L. Hannan et al., "Investigation of the Relationship between Volume and Mortality for Surgical Procedures Performed in New York State Hospitals," Journal of the American Medical Association 262, no. 4 (1989): 503-510; and E.L. Hannan et al., "Coronary Artery Bypass Surgery: The Relationship between Inhospital Mortality Rate and Surgical Volume after Controlling for Clinical Risk Factors," Medical Care 29, no. 11 (1991): 1094-1107.
21. The discharge files were public use files obtained from the Florida Agency for Health Care Administration.
22. Commercially insured non-HMO patients include patients with traditional indemnity insurance as well as patients in preferred provider organizations (PPOs). Although both HMOs and PPOs engage in selective contracting, out-of-plan use by PPO members is considerable. PPOs also tend to contract with more providers than HMOs contract with. As a result, PPOs are much less likely than HMOs to promote market segmentation. See P. Diehr et al., "Use of a Preferred Provider by Employees of the Preferred Provider," Health Services Research 23, no. 4 (1988): 537-554; N. Shelton, "Competitive Contingencies in Selective Contracting for Hospital Services," Medical Care Review 46, no. 3 (1989): 271-293; K.B. Wells et al., "Mental Health and Selection of Preferred Providers: Experience in Three Employee Groups," Medical Care 29, no. 9 (1991): 911-924; and Marion Merrell Dow, Managed Care Digest: HMO Edition and PPO Edition (Kansas City, Mo.: Marion Merrell Dow, 1993).
23. Commercially insured non-HMO patients include patients with traditional indemnity insurance as well as patients in preferred provider organizations (PPOs). Although both HMOs and PPOs engage in selective contracting, out-of-plan use by PPO members is considerable. PPOs also tend to contract with more providers than HMOs contract with. As a result, PPOs are much less likely than HMOs to promote market segmentation. See P. Diehr et al., "Use of a Preferred Provider by Employees of the Preferred Provider," Health Services Research 23, no. 4 (1988): 537-554; N. Shelton, "Competitive Contingencies in Selective Contracting for Hospital Services," Medical Care Review 46, no. 3 (1989): 271-293; K.B. Wells et al., "Mental Health and Selection of Preferred Providers: Experience in Three Employee Groups," Medical Care 29, no. 9 (1991): 911-924; and Marion Merrell Dow, Managed Care Digest: HMO Edition and PPO Edition (Kansas City, Mo.: Marion Merrell Dow, 1993).
24. Commercially insured non-HMO patients include patients with traditional indemnity insurance as well as patients in preferred provider organizations (PPOs). Although both HMOs and PPOs engage in selective contracting, out-of-plan use by PPO members is considerable. PPOs also tend to contract with more providers than HMOs contract with. As a result, PPOs are much less likely than HMOs to promote market segmentation. See P. Diehr et al., "Use of a Preferred Provider by Employees of the Preferred Provider," Health Services Research 23, no. 4 (1988): 537-554; N. Shelton, "Competitive Contingencies in Selective Contracting for Hospital Services," Medical Care Review 46, no. 3 (1989): 271-293; K.B. Wells et al., "Mental Health and Selection of Preferred Providers: Experience in Three Employee Groups," Medical Care 29, no. 9 (1991): 911-924; and Marion Merrell Dow, Managed Care Digest: HMO Edition and PPO Edition (Kansas City, Mo.: Marion Merrell Dow, 1993).
25. Commercially insured non-HMO patients include patients with traditional indemnity insurance as well as patients in preferred provider organizations (PPOs). Although both HMOs and PPOs engage in selective contracting, out-of-plan use by PPO members is considerable. PPOs also tend to contract with more providers than HMOs contract with. As a result, PPOs are much less likely than HMOs to promote market segmentation. See P. Diehr et al., "Use of a Preferred Provider by Employees of the Preferred Provider," Health Services Research 23, no. 4 (1988): 537-554; N. Shelton, "Competitive Contingencies in Selective Contracting for Hospital Services," Medical Care Review 46, no. 3 (1989): 271-293; K.B. Wells et al., "Mental Health and Selection of Preferred Providers: Experience in Three Employee Groups," Medical Care 29, no. 9 (1991): 911-924; and Marion Merrell Dow, Managed Care Digest: HMO Edition and PPO Edition (Kansas City, Mo.: Marion Merrell Dow, 1993).
26. D.W. Garnick et al., "Appropriate Measures of Hospital Market Areas," Health Services Research 22, no. 1 (1987): 69-89.
27. We adjusted CABG mortality rates for patients' age, sex, admission source, acute myocardial infarction as the cause of admission, congestive heart failure, coronary angioplasty prior to surgery, use of the internal mammary artery for surgery, and eight chronic comorbidities. The method used to develop the adjusted rates was the standard one in the literature. See, for example, H.S. Luft et al., "Chance, Continuity, and Change in Hospital Mortality Rates," Journal of the American Medical Association 270, no. 3 (1993): 331-337; E.L. Hannan et al., "Clinical versus Administrative Data Bases for CABG Surgery: Does It Matter?" Medical Care 30, no. 10 (1992): 892-907; and B. Landon et al., "Judging Hospitals by Severity-Adjusted Mortality Rates: The Case of CABG Surgery," Inquiry 33, no. 2 (1996): 155-166.
28. We adjusted CABG mortality rates for patients' age, sex, admission source, acute myocardial infarction as the cause of admission, congestive heart failure, coronary angioplasty prior to surgery, use of the internal mammary artery for surgery, and eight chronic comorbidities. The method used to develop the adjusted rates was the standard one in the literature. See, for example, H.S. Luft et al., "Chance, Continuity, and Change in Hospital Mortality Rates," Journal of the American Medical Association 270, no. 3 (1993): 331-337; E.L. Hannan et al., "Clinical versus Administrative Data Bases for CABG Surgery: Does It Matter?" Medical Care 30, no. 10 (1992): 892-907; and B. Landon et al., "Judging Hospitals by Severity-Adjusted Mortality Rates: The Case of CABG Surgery," Inquiry 33, no. 2 (1996): 155-166.
29. We adjusted CABG mortality rates for patients' age, sex, admission source, acute myocardial infarction as the cause of admission, congestive heart failure, coronary angioplasty prior to surgery, use of the internal mammary artery for surgery, and eight chronic comorbidities. The method used to develop the adjusted rates was the standard one in the literature. See, for example, H.S. Luft et al., "Chance, Continuity, and Change in Hospital Mortality Rates," Journal of the American Medical Association 270, no. 3 (1993): 331-337; E.L. Hannan et al., "Clinical versus Administrative Data Bases for CABG Surgery: Does It Matter?" Medical Care 30, no. 10 (1992): 892-907; and B. Landon et al., "Judging Hospitals by Severity-Adjusted Mortality Rates: The Case of CABG Surgery," Inquiry 33, no. 2 (1996): 155-166.
30. Based on the 1997 adjusted average per capita costs (AAPCCs) for Dade, Broward, and Palm Beach counties and the 1997 U.S. per capita cost (USPCC), published by the Health Care Financing Administration.
31. Area Resource File, Office of Data Analysis and Management, Bureau of Health Professions.
32. Group Health Association of America, 1995 National Directory of HMOs (Washington: GHAA, June 1995).
33. Luft et al., "Should Operations Be Regionalized?;" Showstack et al., "Association of Volume with Outcome of Coronary Artery Bypass Graft Surgery;" and Hannan et al., "Coronary Artery Bypass Surgery."
34. Luft et al., "Should Operations Be Regionalized?;" Showstack et al., "Association of Volume with Outcome of Coronary Artery Bypass Graft Surgery;" and Hannan et al., "Coronary Artery Bypass Surgery."
35. Luft et al., "Should Operations Be Regionalized?;" Showstack et al., "Association of Volume with Outcome of Coronary Artery Bypass Graft Surgery;" and Hannan et al., "Coronary Artery Bypass Surgery."
36. K. Grumbach et al., "Regionalization of Cardiac Surgery in the United States and Canada," Journal of the American Medical Association 274, no. 16 (1995): 1282-1288.
37. The eight-firm concentration ratio is a standard measure used in industrial organization to summarize the distribution of market shares among firms. See, for example, J. Tirole, The Theory of Industrial Organization (Cambridge, Mass.: The MIT Press, 1988), 221-223.
38. Schulman et al., "Quality Assessment in Contracting for Tertiary Care Services."
39. GHAA, 1995 National Directory of HMOs.
40. Luft et al., "Chance, Continuity, and Change in Hospital Mortality Rates;" Hannan et al., "Clinical versus Administrative Data Bases for CABG Surgery;" and Landon et al., "Judging Hospital s by Severity-Adjusted Mortality Rates."
41. Luft et al., "Chance, Continuity, and Change in Hospital Mortality Rates;" Hannan et al., "Clinical versus Administrative Data Bases for CABG Surgery;" and Landon et al., "Judging Hospital s by Severity-Adjusted Mortality Rates."
42. Luft et al., "Chance, Continuity, and Change in Hospital Mortality Rates;" Hannan et al., "Clinical versus Administrative Data Bases for CABG Surgery;" and Landon et al., "Judging Hospital s by Severity-Adjusted Mortality Rates."
43. A.J. Hartz et al., "Hospital Characteristics and Mortality Rates," The New England Journal of Medicine 321, no. 25 (1989): 1720-1725; and E.B. Keeler et al., "Hospital Characteristics and Quality of Care," Journal of the American Medical Association 268, no. 13 (1992): 1709-1714.
44. A.J. Hartz et al., "Hospital Characteristics and Mortality Rates," The New England Journal of Medicine 321, no. 25 (1989): 1720-1725; and E.B. Keeler et al., "Hospital Characteristics and Quality of Care," Journal of the American Medical Association 268, no. 13 (1992): 1709-1714.
45. Reuters Medical News, "Small Firms More Concerned about Cost of Health Benefits," 4 March 1996.
46. D.J. Lipson and J.M. De Sa, "Impact of Purchasing Strategies on Local Health Care Systems," Health Affairs (Summer 1996): 62-76.
47. Hannan et al., "Coronary Artery Bypass Surgery;" and Hannan et al., "Investigation of the Relationship between Volume and Mortality."
48. Hannan et al., "Coronary Artery Bypass Surgery;" and Hannan et al., "Investigation of the Relationship between Volume and Mortality."