Trends in Hospital Cost and Revenue, 1994–2005: How Are They Related to HMO Penetration, Concentration, and For-Profit Ownership?

Authors

  • Yu-Chu Shen,

    1. Associate Professor of Economics, Graduate School of Business and Public Policy, Naval Postgraduate School, Naval Postgraduate School, 555 Dyer Road, Monterey, CA 93943
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    • Address correspondence to Yu-Chu Shen, Ph.D., Associate Professor of Economics, Graduate School of Business and Public Policy, Naval Postgraduate School, Naval Postgraduate School, 555 Dyer Road, Monterey, CA 93943; e-mail: yshen@nps.edu. Vivian Y. Wu, Ph.D., is with the School of Policy, Planning, and Development, University of Southern California, Los Angeles, CA. Glenn Melnick, Ph.D., is with the School of Policy, Planning, and Development, University of Southern California, Los Angeles, CA.

  • Vivian Y. Wu,

    1. School of Policy, Planning, and Development, University of Southern California, Los Angeles, CA
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  • Glenn Melnick

    1. School of Policy, Planning, and Development, University of Southern California, Los Angeles, CA
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Abstract

Objective. Analyze trends in hospital cost and revenue, as well as price and quantity (1994–2005) as a function of health maintenance organization (HMO) penetration, HMO concentration, and for-profit (FP) HMO market share.

Data. Medicare hospital cost reports, AHA Annual Surveys, HMO data from Interstudy, and other supplemental data.

Study Design. A retrospective study of all short-term, general, nonfederal hospitals in metropolitan statistical areas (MSAs) in the United States from 1994 to 2005, using hospital/MSA fixed-effects translog regression models.

Principal Findings. A 10 percentage point increase in HMO enrollment is associated with 4.1–4.2 percent reduction in costs and revenues in the pre-2000 period but only a 2.1–2.5 percent reduction in the post-2000 period. Hospital revenue in HMO-dominant markets (highly concentrated HMO market and competitive hospital market) is 19–27 percent lower than other types of markets, and the difference is most likely due mainly to lower prices and to a lesser extent lower utilization.

Conclusions. The historical difference of lower spending in high HMO penetration markets compared with low HMO markets narrowed after 2000 and the relative concentration between HMO and hospital markets can substantially influence hospital spending. Additional research is needed to understand how different aspects of these two markets have changed and interacted and how they are causally linked to spending trends.

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