Health Care Costs and Financing

Study questions whether competition among HMOs will inherently improve care quality

For many years, proponents of health maintenance organizations (HMOs) have touted their potential through competition to reduce health care costs and improve quality of care. However, a recent study found that in 1999, plans in more competitive markets did not achieve better quality on half of the quality dimensions measured. On the other hand, plans in markets with greater HMO penetration did achieve better quality on some performance measures. The study was led by Dennis P. Scanlon, Ph.D., of Pennsylvania State University, and supported by the Agency for Healthcare Research and Quality.

Dr. Scanlon and his colleagues used several models to simultaneously estimate six quality variables from 35 Health Plan Employer Data and Information Set (HEDIS®) and Consumer Assessment of Health Plans Study (CAHPS®) survey measures. They then examined the relationship of these variables to HMO competition and HMO market penetration, while controlling for other health plan and market characteristics. CAHPS® surveys the opinions of health plan members about the quality of care and services provided by their plans and physicians seen through the plans. HEDIS® is a set of clinical process and outcome measures derived from scientific evidence and measured for relevant health plan populations.

Based on the models, greater competition was associated with inferior health plan performance on three of six quality dimensions. Plans in markets with greater HMO penetration performed better on HEDIS®- but not CAHPS®-based dimensions of performance. Providers in these markets may be under greater pressure from plans to improve performance on the HEDIS® indicators, suggest the researchers. Also, the lack of a relationship between HMO penetration and the CAHPS® domains might reflect less receptivity of individuals to HMO care in such markets. And finally, plans that made their data available publicly performed significantly better on both the HEDIS® and CAHPS® domains than plans that did not make their results public, underscoring the importance of plan disclosure.

See "Competition and health plan performance: Evidence from health maintenance organization insurance markets," by Dr. Scanlon, Shailender Swaminathan, Ph.D., Michael Chernew, Ph.D., and others, in the April 2005 Medical Care 43(4), pp. 338-346.

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