Skip Navigation U.S. Department of Health and Human Services
Agency for Healthcare Research Quality
Archive print banner

Managed Care/Primary Care

This information is for reference purposes only. It was current when produced and may now be outdated. Archive material is no longer maintained, and some links may not work. Persons with disabilities having difficulty accessing this information should contact us at: Let us know the nature of the problem, the Web address of what you want, and your contact information.

Please go to for current information.

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.

Return to Contents
Proceed to Next Article

The information on this page is archived and provided for reference purposes only.


AHRQ Advancing Excellence in Health Care