Hospitals contracting with managed care

It has been observed that enrollees in managed care systems such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs) have lower utilization rates and lower expenditures than those in conventional fee-for-service health insurance programs. To date, no study has investigated this issue by examining providers. This paper studies whether lower cost hospitals are more likely to sign contracts with HMOs and PPOs and thus explain the observed lower utilization rates and lower expenditures by HMO and PPO enrollees. A logistic regression is applied to the data from the 1988 AHA Annual Survey of Hospitals. The results show that private hospitals, teaching hospitals, hospitals accredited by JCAHO, hospitals with high case mix index, and hospitals located in MSAs are more likely to contract with HMOs and PPOs than their counterparts. If hospitals with these characteristics have higher costs, then the results do not suggest that hospital costs can explain the lower utilizations and lower expenditures by HMO and PPO enrollees.