Scale and scope economies among health maintenance organizations

Abstract

We examine scale and scope economics among Group and IPA Health Maintenance Organizations (HMOs) over the period 1988 to 1991 using a national sample of HMOs. We allow for the multiproduct nature of HMO production by estimating the cost of producing a member month of non-Medicare and Medicare coverage, and we examine the effect of HMO market structure on costs. We find that HMOs benefit from scale economies. There are scope diseconomies associated with providing both non-Medicare and Medicare products. Group HMOs in more competitive markets have lower costs but IPA costs are not affected by competition.