Do HMO penetration and hospital competition impact quality of hospital care?

This study examines the impact of HMO penetration and competition on hospital markets. A modified structure-conduct-performance paradigm was applied to the health care industry in order to investigate the impact of HMO penetration and competition on risk-adjusted hospital mortality rates (i.e. quality of hospital care). Secondary data for 1957 acute care hospitals in the USA from the 1991 American Hospital Association's Annual Survey of Hospitals were used. The outcome variables were risk-adjusted mortality rates in 1991. Predictor variables were market characteristics (i.e. managed care penetration and hospital competition). Control variables were environmental, patient, and institutional characteristics. Associations between predictor and outcome variables were investigated using statistical regression techniques. Hospital competition had a negative relationship with risk-adjusted mortality rates (a negative indicator of quality of care). HMO penetration, hospital competition, and an interaction effect of HMO penetration and competition were not found to have significant effects on risk-adjusted mortality rates. These findings suggest that when faced with intense competition, hospitals may respond in ways associated with reducing their mortality rates.