The competitive effects of health maintenance organizations: another look at the evidence from Hawaii, Rochester, and Minneapolis/St. Paul

Abstract

There has been much discussion about the potential cost-containing impact of HMOs upon the local medical care market. Three areas have been identified by various observers as experiencing such beneficial effects: Hawaii, after the development of Kaiser in the late 1950s; Rochester, New York, which experienced rapid HMO growth and declining Blue Cross hospital use in the late 1970s; and Minneapolis/St. Paul, which has been the focus of vigorous HMO competition in the last decade. While comprehensive data on health care expenditures are not available, bits of evidence can be pieced together to develop case studies of each area. Careful review of the available data often identifies internal inconsistencies and contradictions, but in none of the three sites is there a reduction in hospital use that is most plausibly attributed to HMO competition. Instead, the reported reductions are in each case attributable to other factors--including biases in data, long-term trends predating HMOs, indirect effects of other policy changes, and other forms of competition.