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Competition among Hospitals for HMO Business: Effect of Price and Nonprice Attributes

Authors

  • Gary J Young,

  • James F Burgess Jr.,

  • Danielle Valley


  • Financial support for the research presented in the paper was provided by the Robert Wood Johnson Foundation's Health Care Financing and Organization Initiative.

    This paper received the Best Theory-to-Practice Award from the Health Care Management Division, Academy of Management.

Gary J. Young is Senior Researcher with the Department of Veterans Affairs. He is also Associate Professor, Health Services Department, and Co-director, Program on Health Policy and Management, Boston University School of Public Health, 715 Albany Street, Boston, MA 02118. James F. Burgess Jr., is an Economist with the Department of Veterans Affairs and an Assistant Professor, Health Services Department, Boston University School of Public Health. Danielle Valley is an Analyst with the Department of Veterans Affairs.

Abstract

Objective. To investigate patterns of competition among hospitals for the business of health maintenance organizations (HMOs). The study focused on the relative importance of hospital price and nonprice attributes in the competition for HMO business.

Data Sources/Study Setting. The study capitalized on hospital cost reports from Florida that are unique in their inclusion of financial data regarding HMO business activity. The time frame was 1992 to 1997.

Study Design. The study was designed as an observational investigation of acute care hospitals.

Principal Findings. Results indicated that a hospital's share of HMO business was related to both its price and nonprice attributes. However, the importance of both price and nonprice attributes diminished as the number of HMOs in a market increased. Hospitals that were market share leaders in terms of HMO business (i.e., 30 percent or more market share) were superior, on average, to their competitors on both price and nonprice attributes.

Conclusions. Study results indicate that competition among hospitals for HMO business involves a complex set of price and nonprice attributes. The HMOs do not appear to focus on price alone. Hospitals likely to be the most attractive to HMOs are those that can differentiate themselves on the basis of nonprice attributes while being competitive on price as well.

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