Segmentation of Hospital Markets

Commercially insured and Medicare patients who are not in health maintenance organizations (HMOs) tend to use different hospitals than HMO patients use. This phenomenon, called market segmentation, raises important questions about how hospitals that treat many HMO patients differ from those that treat few HMO patients, especially with regard to quality of care. This study of patients undergoing coronary artery bypass graft surgery found no evidence that HMOs in southeast Florida systematically channel their patients to high-volume or low-mortality hospitals. These findings are consistent with other evidence that in many areas of the country, incentives for managed care plans to reduce costs may outweigh incentives to improve quality.