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Managed Care/Primary Care

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Several factors affect the variability of managed care penetration across health care markets

Enrollments in managed care organizations (MCOs) such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs) have increased dramatically over the past 15 years. However, managed care penetration varies across markets and is influenced by the structure of hospital markets, prevalence of physician groups, and certain demographic and labor force characteristics, concludes a study supported by the Agency for Health Care Policy and Research (HS09210).

William D. White, Ph.D., of Yale University School of Medicine, and his colleagues used a simple supply and demand model to identify sources of geographic variation in managed care penetration. They used data from the Socioeconomic Monitoring System (SMS) of the American Medical Association to calculate the proportion of physician revenue coming from managed care contracts for nearly 300 metropolitan areas. They compared SMS revenue-based measures with measures based on individual enrollment using 1995 data on managed care penetration derived from a market research firm. Results showed that physicians in the average metropolitan area received about one-fourth of their revenue from managed care payers.

Penetration was inversely related to the proportion of physicians in solo practice, hospital market concentration, and hospital occupancy. For example, a metropolitan area whose HERFINDAHL (index of hospital concentration) was one standard deviation above the mean in 1980 would have a 6 percent lower MC penetration in 1994 and 1995 than the average metropolitan area. Similarly, an area with a hospital occupancy rate that was one standard deviation above the mean in 1980 would have 1.5 percent lower MC penetration in 1994 and 1995. These were supply side factors. On the demand side, managed care penetration was inversely related to the proportion of the population that was minority, positively related to the proportion with a college education, and higher in more urbanized areas.

More details are in "Determinants of managed care penetration," by David Dranove, Ph.D., Carol J. Simon, Ph.D., and Dr. White, in the Journal of Health Economics 17, pp. 729-745, 1998.

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