Determinants of information technology outsourcing among health maintenance organizations.

We analyze the determinants of HMO information technology outsourcing using two studies. Study 1 examines the effect of asset specificity on outsourcing for development and operation activities, using HMO specific fixed effects to control for differences between HMOs. Study 2 regresses the HMO specific fixed effects from Study 1, which measure an HMO's propensity to outsource, on HMO characteristics. The data comes from a 1995 InterStudy survey about information technology organization of HMOs. While HMOs split roughly equally in outsourcing information technology development activities, they are extremely unlikely to outsource the day-to-day operation of information systems. The greater an HMO's information technology capability and the complexity of information systems supported, the less likely is an HMO to outsource. While HMOs less than two years old, for-profit HMOs, local or Blue Cross-affiliated HMOs, and mixed HMOs are more likely to outsource, federally qualified HMOs are less likely to outsource. Policy and managerial implications for the adoption and diffusion of new ways of organizing information technology, such as application service providers (ASPs), are discussed.

Comparing the agreement among alternative models in evaluating HMO efficiency.

OBJECTIVE: To describe the efficiency of HMOs and to test the robustness of these findings across alternative models of efficiency. This study examines whether these models, when constructed in parallel to use the same information, provide researchers with the same insights and identify the same trends. DATA SOURCES: A data set containing 585 HMOs operating from 1985 through 1994. Variables include enrollment, utilization, and financial information compiled primarily from Health Care Investment Analysts, InterStudy HMO Census, and Group Health Association of America. STUDY DESIGN: We compute three estimates of efficiency for each HMO and compare the results in terms of individual performance and industry-wide trends. The estimates are then regressed against measures of case mix, quality, and other factors that may be related to the model estimates. PRINCIPAL FINDINGS: The three models identify similar trends for the HMO industry as a whole; however, they assess the relative technical efficiency of individual firms differently. Thus, these techniques are limited for either benchmarking or setting rates because the firms identified as efficient may be a consequence of model selection rather than actual performance. CONCLUSIONS: The estimation technique to evaluate efficient firms can affect the findings themselves. The implications are relevant not only for HMOs, but for efficiency analyses in general. Concurrence among techniques is no guarantee of accuracy, but it is reassuring; conversely, radically distinct inferences across models can be a warning to temper research conclusions.

The diffusion of information technology among health maintenance organizations.

This article examines the information technology functions, staffing and cost, services provided, and advanced technologies among health maintenance organizations (HMOs) using a national sample of HMOs from mid-1995. HMOs have a well-developed capability to use data from administrative functions, such as claims processing. Nationally affiliated HMOs and HMOs in markets with greater HMO penetration support more IT functions. Relatively little work has been completed integrating clinical with administrative systems.

Impact of HMO market structure on physician-hospital strategic alliances.

OBJECTIVE: To assess the impact of HMO market structure on the formation of physician-hospital strategic alliances from 1993 through 1995. The two trends, managed care and physician-hospital integration have been prominent in reshaping insurance and provider markets over the past decade. STUDY DESIGN: Pooled cross-sectional data from the InterStudy HMO Census and the Annual Survey conducted by the American Hospital Association (AHA) between 1993 and the end of 1995 to examine the effects of HMO penetration and HMO numbers in a market on the formation of hospital-sponsored alliances with physicians. Because prior research has found nonlinear effects of HMOs on a variety of dependent variables, we operationalized HMO market structure two ways: using a Taylor series expansion and cross-classifying quartile distributions of HMO penetration and numbers into 16 dummy indicators. Alliance formation was operationalized using the presence of any alliance model (IPA, PHO, MSO, and foundation) and the sum of the four models present in the hospital. Because managed care and physician-hospital integration are endogenous (e.g., some hospitals also sponsor HMOs), we used an instrumental variables approach to model the determinants of HMO penetration and HMO numbers. These instruments were then used with other predictors of alliance formation: physician supply characteristics, the extent of hospital competition, hospital-level descriptors, population size and demographic characteristics, and indicators for each year. All equations were estimated at the MSA level using mixed linear models and first-difference models. PRINCIPAL FINDINGS: Contrary to conventional wisdom, alliance formation is shaped by the number of HMOs in the market rather than by HMO penetration. This confirms a growing perception that hospital-sponsored alliances with physicians are contracting vehicles for managed care: the greater the number of HMOs to contract with, the greater the development of alliances. The models also show that alliance formation is low in markets where a small number of HMOs have deeply penetrated the market. First-difference models further show that alliance formation is linked to HMO consolidation (drop in the number of HMOs in a market) and hospital downsizing. Alliance formation is not linked to changes in hospital costs, profitability, or market competition with other hospitals. CONCLUSIONS: Hospitals appear to form alliances with physicians for several reasons. Alliances serve to contract with the growing number of HMOs, to pose a countervailing bargaining force of providers in the face of HMO consolidation, and to accompany hospital downsizing and restructuring efforts. IMPLICATIONS FOR POLICY, DELIVERY, OR PRACTICE: Physician-hospital integration is often mentioned as a provider response to increasing cost-containment pressures due to rising managed care penetration. Our findings do not support this view. Alliances appear to serve the hospital's interest in bargaining with managed care plans on a more even basis.

HMO consolidations: how national mergers affect local markets.

The health maintenance organization (HMO) industry has undergone a wave of national consolidations in recent years. The most notable among these were between United HealthCare and MetraHealth (1995), PacifiCare Health Systems and FHP International (1996), Aetna Life and Casualty and U.S. Healthcare (1996), and Aetna and Prudential's health care unit (1999). This paper examines HMO consolidation from 1994 to 1997, looking first at concentration at the national level and then at the consequences of national consolidations for local markets. Whereas earlier mergers may have caused only a small increase in the type of local market concentration that may increase prices, later and currently proposed mergers may be motivated by considerations of increasing local market concentration. However, the concentration-increasing effect of national mergers was offset by the concentration-decreasing effect of HMO entry and growth. The analyses suggest that antitrust policy still has a role to play in ensuring that HMO markets remain open to new entry and in evaluating the effect of national mergers on local market concentration.

Trust me: technical and institutional determinants of health maintenance organizations shifting risk to physicians.

This paper examines the factors that influence a Health Maintenance Organization (HMO) to shift risk to doctors through an incentive arrangement called capitation, where physicians are paid a fixed amount per patient for a period of time for any and all medical services required by the patient. Multispecialty-medical-group (Group) HMOs are more likely to shift risk than Independent Physician Associations (IPA) HMOs. Within IPA HMOs, larger enrollment per physician is positively associated with more risk shifting. We find that institutional factors signaling legitimacy play an important role in determining risk shifting. For-profit HMOs are less likely to shift risk, which we interpret as reflecting consumer distrust of for-profit HMOs. However, for-profit HMOs that are federally qualified, which we interpret as a signal of legitimacy, are more likely to shift risk.

Managed care and the delivery of primary care to the elderly and the chronically ill.

OBJECTIVE: To analyze primary care staffing in HMOs and to review the literature on primary care organization and performance in managed care organizations, with an emphasis on the delivery of primary care to the elderly and chronically ill. DATA SOURCES/STUDY SETTING: Analysis of primary care staffing: InterStudy HMO census data on primary care (n = 1,956) and specialist (n = 1,777) physician staffing levels from 1991 through 1995. Primary care organization and performance for the chronically ill and elderly were analyzed using a review of published research. STUDY DESIGN: For the staffing-level models, the number of primary care and specialist physicians per 100,000 enrollees was regressed on HMO characteristics (HMO type [group, staff, network, mixed], HMO enrollment, federal qualification, profit status, national affiliation) and community characteristics (per capita income, population density, service area size, HMO competition). For the review of organization and performance, literature published was summarized in a tabular format. PRINCIPAL FINDINGS: The analysis of physician staffing shows that group and staff HMOs have fewer primary care and specialist physicians per 100,000 enrollees than do network and mixed HMOs, which have fewer than IPAs. Larger HMOs use fewer physicians per 100,000 enrollees than smaller HMOs. Federally qualified HMOs have fewer primary care and specialist physicians per 100,000 enrollees. For-profit, nationally affiliated, and Blue Cross HMOs have more primary care and specialist physicians than do local HMOs. HMOs in areas with high per capita income have more PCPs per 100,000 and a greater proportion of PCPs in the panel. HMO penetration decreases the use of specialists, but the number of HMOs increases the use of primary care and specialist physicians in highly competitive markets. Under very competitive conditions, HMOs appear to compete by increasing access to both PCPs and specialists, with a greater emphasis on access to specialists. The review of research on HMO performance suggests that access to PCPs is better in MCOs. But access to specialists and hospitals is lower and more difficult in MCOs than FFS. Data do not suggest that processes of care, given access, are different in MCOs and FFS. MCO enrollees are more satisfied with financial aspects of a health plan and less satisfied with other aspects of health plan organization. There are potential problems with outcomes, with some studies finding greater declines among the chronically ill in MCOs than FFS. We found a variety of innovative care programs for the elderly, based on two fundamentally different approaches: organization around primary care or organizing around specialty care. Differences between the performance of the two approaches cannot be evaluated because of the small amount of research done. It is difficult to say how well particular programs perform and if they can be replicated. The innovative programs described in the literature tend to be benchmark programs developed by HMOs with a strong positive reputation.

The impact of physician involvement in managed care on efficient use of hospital resources.

OBJECTIVES: This research assesses the impact of managed care on the physician's efficient use of hospital resources. It examines three questions. (1) Does a higher percentage and volume of managed care patients in the physician's hospital practice lead to more efficient utilization? (2) Do physicians shift cost to nonmanaged care patients in an effort to compensate for lower reimbursement for managed care patients? (3) Are there threshold effects in the percentage and volume of managed care patients treated by physicians? METHODS: The study combines patient discharge data from the state of Arizona with physician and hospital data for a 2-year period. Random effects maximum likelihood (REML) regressions were performed for four different diagnosis classifications to examine the effect of the physician's managed care caseload on mean-adjusted charges and length of stay. RESULTS: The findings suggest that physicians with high percentages and volumes of managed care patients in their hospital practice are more efficient in using hospital resources. The findings also suggest that physicians may compensate for the lower reimbursement from managed care patients by increasing their resource use among non-health maintenance organization patients. CONCLUSIONS: Finally, there appears to be a threshold effect of managed care activity on the physician's hospital utilization in one of the conditions studied.

HMO market structure and performance: 1985-1995.

This paper estimates the effect of market structure on hospital days and ambulatory visits in independent practice associations (IPAs) and group-model health maintenance organizations (HMOs) where market structure is measured by HMO penetration and the number of HMOs operating in a market. There was a steady decline in inpatient use in HMOs during the study period and a steady increase in use of ambulatory care. In multivariate analyses, inpatient use is significantly higher in IPAs, but there is no difference in ambulatory use. As HMO penetration increases and the number of HMOs increases, group-model HMOs have lower hospital use and greater ambulatory use. In contrast, use of both inpatient and ambulatory care decreases in IPAs but only at high levels of penetration and numbers of competitors.

Managed care, market stages, and integrated delivery systems: is there a relationship?

This DataWatch evaluates four-stage models of market evolution developed initially by the University HealthSystem Consortium (UHC). Such models suggest that increasing health maintenance organization (HMO) penetration is linked with increases in hospital consolidation and vertical integration between physicians and hospitals. These claims are tested using national data for 1992-1995. Results suggest that such models accurately classify the markets of UHC member hospitals according to their levels of HMO penetration only. Moreover, they do not discern evolutionary stages of market development and may not be generalizable to the markets of non-UHC member hospitals. Researchers and policymakers should exercise caution in applying such models.

Impact of integrated community nursing services on hospital utilization and costs in a Medicare risk plan.

This study measures the impact of integrated community nursing services on hospital use and costs for elderly people in a health maintenance organization (HMO). We tracked 4,943 HMO patients over three consecutive five-month periods (one preintervention and two postintervention). We compared 326 patients who entered a program of integrated services during period 2 with 301 patients who entered during period 3 and 4,316 nonprogram patients in respect to their utilization and costs during periods 2 and 3. Regression results reveal that patients receiving integrated services had significantly higher utilization and costs during the period of enrollment and significantly lower utilization and costs during the period following enrollment, compared to nonprogram patients. These results were replicated when considering only patients with observed episodes of care in these periods, when controlling for hospital use and costs in the prior period, and when controlling for the risk of selection into the program. The findings suggest that integrating services at the community level may achieve substantial cost savings.

The effect of physician factors on the cesarean section decision.

The number of deliveries by cesarean section (c-section) has increased dramatically. Clinical and demographic factors have not adequately explained the increased rate, however. This study investigates the role of nonclinical (i.e., physician) factors in explaining variations in c-section rates, including the physician's training/experience, financial and convenience incentives, and practice characteristics. The study measures the impact of these factors on the decision to perform a c-section rather than opting for vaginal delivery, controlling for a host of patient and hospital characteristics. Physician effects are evaluated in terms of their overall contribution to the explanatory power of logistic regression models, as well as in terms of specific hypotheses to be tested. The analyses are based on 33,233 deliveries performed by 441 physicians in 36 hospitals in 1 state during 1989. As a set, physician factors contribute more to the explanatory power of the model than do hospital factors, despite being added last to the equation. Parameter estimates provide more support for the hypothesized effects of physician convenience incentives than background/training. The log odds of performing a c-section increase with the physician's rate of c-sections in the prior year, delivery on a Friday, and delivery between 6 AM and 6 PM, and decrease with the concentration of the physician's hospital practice. Patient factors appear much more important than both physician and hospital factors, however. Efforts to reduce unnecessary c-sections should focus on identifying the appropriate clinical indications for c-section and disseminating this information to physicians.

The effect of physician practice organization on efficient utilization of hospital resources.

OBJECTIVE: This study examines variations in the efficient use of hospital resources across individual physicians. DATA SOURCES AND SETTING: The study is conducted over a two-year period (1989-1990) in all short-term general hospitals with 50 or more beds in Arizona. We examine hospital discharge data for 43,625 women undergoing cesarean sections and vaginal deliveries without complications. These data include physician identifiers that permit us to link patient information with information on physicians provided by the state medical association. STUDY DESIGN: The study first measures the contribution of physician characteristics to the explanatory power of regression models that predict resource use. It then tests hypothesized effects on resource utilization exerted by two sets of physician level factors: physician background and physician practice organization. The latter includes effects of hospital practice volume, concentration of hospital practice, percent managed care patients in one's hospital practice, and diversity of patients treated. Efficiency (inefficiency) is measured as the degree of variation in patient charges and length of stay below (above) the average of treating all patients with the same condition in the same hospital in the same year with the same severity of illness, controlling for discharge status and the presence of complications. PRINCIPAL FINDINGS: After controlling for patient factors, physician characteristics explain a significant amount of the variability in hospital charges and length of stay in the two maternity conditions. Results also support hypotheses that efficiency is influenced by practice organization factors such as patient volume and managed care load. Physicians with larger practices and a higher share of managed care patients appear to be more efficient. CONCLUSIONS: The results suggest that health care reform efforts to develop physician-hospital networks and managed competition may promote greater parsimony in physicians' practice behavior.

Product differentiation among health maintenance organizations: causes and consequences of offering open-ended products.

Open-ended products that allow an HMO enrollee to use providers who are not affiliated with the HMO have become an important component of the Clinton administration's health reform proposal, because these products maintain consumer freedom of choice of any provider. However, little is known about the consequences of offering an open-ended product from an organizational standpoint. This paper uses a theory of "spatial competition" to examine the decisions of health maintenance organizations to offer an open-ended product and the effect of offering an open-ended product on their enrollment.

Adoption and abandonment of matrix management programs: effects of organizational characteristics and interorganizational networks.

Organizational design theorists argue that organizations adopt matrix (departmentalized) structures for technical reasons, to solve problems of internal coordination and information processing. Research on interorganizational networks suggests that organizations adopt new structures because of mimetic forces and normative pressures. We examined the effects of both sets of factors on the adoption of matrix management in a group of hospitals. Multivariate analyses revealed that matrix adoption is influenced not only by task diversity, but also by sociometric location, the dissemination of information, and the cumulative force of adoption in interorganizational networks. Such variables exert little influence on decisions to abandon matrix programs, however.

Hospital utilization and mortality levels for patients in the Arizona Health Care Cost Containment System.

The primary intent behind Medicaid was to mainstream the poor and enable them to receive the same level and quality of care enjoyed by the middle class. This study compares the hospital utilization (total charges, length of stay, charges per day) and mortality levels among beneficiaries of Arizona's experimental Medicaid program with those of privately insured patients. The analysis is based on 121,874 discharges of patients with 11 different conditions from nonfederal general hospitals in Arizona during 1989 and 1990. After controlling for severity of illness and the specific hospital used, as well as several patient, hospital, and physician factors, we find that AHCCCS patients with medical, surgical, and pediatric diagnoses exhibit few significant differences in utilization and mortality compared to patients with private insurance. However, AHCCCS patients undergoing vaginal delivery exhibit significantly lower charges and length of stay, suggesting they underuse these services. AHCCCS women undergoing cesarean section exhibit higher charges and longer stays. We conclude that Arizona's Medicaid program provides hospital care equivalent to that received by privately-insured patients for many but not all conditions.

Factors affecting physician loyalty and exit: a longitudinal analysis of physician-hospital relationships.

This article examines forces that influence physicians to change the percentage of their admissions to a hospital (loyalty) and to cease admitting patients to a hospital altogether (exit). Because physicians are both members of a hospital and consumers of its services, their admitting patterns can be described using models of employee commitment and consumer buying behavior. We test several hypotheses drawn from these literatures using data on physician admissions at hospitals over a two-year period. Results indicate that admitting patterns are explained primarily by convenience and inertia processes characteristic of consumer behavior. On the other hand, factors believed to influence organizational commitment (e.g., decision-making involvement, conflict, economic investments) have little effect on loyalty and exit. The findings question the utility of hospital strategies to improve the climate of physician-hospital relations, and suggest several qualifications for research on the commitment of professionals.

The impact of physician characteristics in conditional choice models for hospital care.

Recent research has investigated the determinants of the specific hospitals to which patients are admitted. Data limitations have led researchers to examine the effects of patient and hospital characteristics while ignoring the role of physician characteristics. In this study we analyze the effects of all three sets of factors on hospital choice in the greater Phoenix area during 1989. Our results suggest that physician characteristics are strong determinants of hospital choice, accounting for much of the explained variation. Differences in hospital quality and cost, on the other hand, exert significant effects on hospital choice but explain relatively little variation.