Predictors of HMO efficiency

This study looks at a variety of factors that may affect Health Maintenance Organization (HMO) efficiency, focusing on the economic incentives that derive from ownership. Previous studies have found that HMO efficiency depends largely on the extent to which ambulatory services substitute for inpatient services. Our analysis supports this conclusion, but takes it one step further. We demonstrate that owners who also provide health care services-specifically physicians and hospitals-may have an incentive to use more of their particular service. Our empirical results show that hospital-owned HMOs do in fact use more inpatient services than do HMOs owned by physicians or others, indicating that hospital-owned HMOs will be less efficient.