A Comparison of HMO Efficiencies as a Function of Provider Autonomy

19 Pages Posted: 17 Mar 2004

See all articles by Patrick L. Brockett

Patrick L. Brockett

University of Texas at Austin - Department of Information, Risk and Operations Management

Ray E. Chang

National Taiwan University - Department of Health Management

John J. Rousseau

University of Texas at Austin - Department of Information, Risk and Operations Management

John H. Semple

Southern Methodist University (SMU) - Information Technology and Operations Management Department (ITOM)

Charles C. Yang

Florida Atlantic University

Abstract

Current debates in the insurance and public policy literatures over health care financing and cost control measures continue to focus on managed care and HMOs. The lower utilization rates found in HMOs (compared to traditional fee-for-service indemnity plans) have generally been attributed to the organization's incentive to eliminate all unnecessary medical services. As a consequence, HMOs are often considered to be a more efficient arrangement for delivering health care. However, it is important to make a distinction between utilization and efficiency (the ratio of outcomes to resources). Few studies have investigated the effect that HMO arrangements would have on the actual efficiency of health care delivery. Because greater control over provider autonomy appears to be a recurrent theme in the literature on reform, it is important to investigate the effects these restrictions have already had within the HMO market. In this article, the efficiencies of two major classes of HMO arrangements are compared using "game-theoretic" data envelopment analysis (DEA) models. While other studies confirm that absolute costs to insurance firms and sponsoring companies are lowered using HMOs, our empirical findings suggest that, within this framework, efficiency generally becomes worse when provider autonomy is restricted. This should give new fuel to the insurance companies providing fee-for-service (FFS) indemnification plans in their marketplace contentions.

Suggested Citation

Brockett, Patrick L. and Chang, Ray E. and Rousseau, John J. and Semple, John H. and Yang, Charles C., A Comparison of HMO Efficiencies as a Function of Provider Autonomy. Journal of Risk and Insurance, Vol. 71, No. 1, pp. 1-19, March 2004. Available at SSRN: https://ssrn.com/abstract=513685

Patrick L. Brockett (Contact Author)

University of Texas at Austin - Department of Information, Risk and Operations Management ( email )

CBA 5.202
Austin, TX 78712
United States

Ray E. Chang

National Taiwan University - Department of Health Management ( email )

19 Su-Chow Rd., Ste. 306
Taipei, Taiwan 106
China

John J. Rousseau

University of Texas at Austin - Department of Information, Risk and Operations Management ( email )

CBA 5.202
Austin, TX 78712
United States
512-232-2447 (Phone)

HOME PAGE: http://www.mccombs.utexas.edu/programs/bhp/prof/rousseau.asp

John H. Semple

Southern Methodist University (SMU) - Information Technology and Operations Management Department (ITOM) ( email )

Dallas, TX 75275
United States
214-768-2546 (Phone)
214-768-4099 (Fax)

Charles C. Yang

Florida Atlantic University ( email )

777 Glades Road
Boca Raton, FL 33431
United States

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