The Determinants of HMO's Contracting with Hospitals for Bypass Surgery

Published in: Health Services Research, v. 37, no. 4, Aug. 2002, p. 963-984

Posted on RAND.org on January 01, 2002

by Darrell Gaskin, Jose J. Escarce, Kevin A. Schulman, Jack Hadley

Read More

Access further information on this document at www.blackwell-synergy.com

This article was published outside of RAND. The full text of the article can be found at the link above.

OBJECTIVE: Selective contracting with health care providers is one of the mechanisms HMOs (Health Maintenance Organizations) use to lower health care costs for their enrollees. However, are HMOs compromising quality to lower costs? To address this and other questions the authors identify factors that influence HMOs' selective contracting for coronary artery bypass surgery (CABG). STUDY DESIGN: Using a logistic regression analysis, the authors estimated the effects of hospitals' quality, costliness, and geographic convenience on HMOs' decision to contract with a hospital for CABG services. They also estimated the impact of HMO characteristics and market characteristics on HMOs' contracting decision. DATA SOURCES: A 1997 survey of a nationally representative sample of 50 HMOs that could have potentially contracted with 447 hospitals. PRINCIPAL FINDINGS: About 44 percent of the HMO-hospital pairs had a contract. The authors found that the probability of an HMO contracting with a hospital increased as hospital quality increased and decreased as distance increased. Hospital costliness had a negative but borderline significant (0.10 < p < .05) effect on the probability of a contract across all types of HMOs. However, this effect was much larger for IPA (Independent Practice Association)-model HMOs than for either group/staff or network HMOs. An increase in HMO competition increased the probability of a contract while an increase in hospital competition decreased the probability of a contract. HMO penetration did not affect the probability of contracting. HMO characteristics also had significant effects on contracting decisions. CONCLUSIONS: The results suggest that HMOs value quality, geographic convenience, and costliness, and that the importance of quality and costliness vary with HMO. Greater HMO competition encourages broader hospital networks whereas greater hospital competition leads to more restrictive networks.

This report is part of the RAND Corporation External publication series. Many RAND studies are published in peer-reviewed scholarly journals, as chapters in commercial books, or as documents published by other organizations.

Our mission to help improve policy and decisionmaking through research and analysis is enabled through our core values of quality and objectivity and our unwavering commitment to the highest level of integrity and ethical behavior. To help ensure our research and analysis are rigorous, objective, and nonpartisan, we subject our research publications to a robust and exacting quality-assurance process; avoid both the appearance and reality of financial and other conflicts of interest through staff training, project screening, and a policy of mandatory disclosure; and pursue transparency in our research engagements through our commitment to the open publication of our research findings and recommendations, disclosure of the source of funding of published research, and policies to ensure intellectual independence. For more information, visit www.rand.org/about/research-integrity.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.