. The first column of Table 2 shows that on the whole, a 10 percentage point increase in HMO penetration
is associated with a 4.1 percent reduction in hospital operating cost between 1994 and 1999.
* Do hospitals with a case management model operate in markets with higher per capita income, lower unemployment rate, less elderly population, and lower HMO penetration
It has been suggested that this instability may be the result of a county having a relatively small number of Medicare beneficiaries or high HMO penetration
The level of HMO penetration
(defined as the ratio of county-level HMO penetration
to national-level HMO penetration
) is a measure of the relative level of managed care across counties.
Significant Medicare HMO penetration
may only be fostered in those areas of the country where Medicare FFS costs of serving Medicare beneficiaries are substantially higher than HMO's costs.
We also control for the HMO penetration
rate reported by Interstudy, which includes the proportion of a market's insured population (e.g., Medicare, Medicaid, and commercial insurance) enrolled in an HMO.
Finally, to control for market characteristics, we include region fixed effects and the county HMO penetration
rate from InterStudy.
The number of Medicare HMO plans available and Medicare HMO penetration
in each county are included to control for supply of insurance plans.
Other weaknesses are their reliance on cross-sectional variation in HMO penetration
and a limited set of controls.
Because our measures for HMO penetration
and percent uninsured are based on data for Metropolitan Statistical Areas (MSA) and were extrapolated to non-MSA counties (Bureau of Health Professions 1999; Bureau of Labor Statistics and Bureau of the Census 2000), we excluded non-MSA counties from the analyses.
In the earliest study, based on data from the early 1980s, Shortell and Hughes (1988) found that in-hospital mortality rates for 16 clinical conditions were higher in market areas with higher HMO penetration
, but the number of competing hospitals in a market area was unassociated with mortality.
MSA level factors used in these analyses, including median area income, HMO penetration
and HMO competition indicators, were linked to the NHIS datasets by MSA and year indicators.