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Causes of cost inefficiency in HMOs

Kris Siddharthan (Department of Health Policy and Management, University of South Florida, Tampa, Florida, USA)
Melissa Ahern (Department of Health Policy and Administration, Washington State University, Spokane, Washington, USA)
Robert Rosenman (Department of Economics, Washington State University, Spokane, Washington, USA)

International Journal of Health Care Quality Assurance

ISSN: 0952-6862

Article publication date: 1 July 2000



Estimates a total effects cost function using a national 1994 health maintenance organization (HMO) data set to examine and update findings related to HMO efficiency. The cost function controls for ownership characteristics (profit status and ownership), size, enrollment diversity, regional location, product diversity, model type, payment characteristics, and years of operation. While not explicitly controlling for quality or acuity, measures of plan and enrollee diversity help control for acuity and quality. Results show that most of the difference in cost efficiency between HMOs is explained by factors specific to the HMO, including efficiencies of scale and scope, lower levels of Medicare patients, and efficient levels of capital. The study also shows that for‐profits are more efficient than non‐profits because they rely less on withhold pools to control costs. Limitations of the study include weak controls for quality of care, and limited data related to payment characteristics.



Siddharthan, K., Ahern, M. and Rosenman, R. (2000), "Causes of cost inefficiency in HMOs", International Journal of Health Care Quality Assurance, Vol. 13 No. 4, pp. 162-169.




Copyright © 2000, MCB UP Limited

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