Testing the HMO competitive strategy: an analysis of its impact on medical resources

Competitive approaches to health care reform, including managed competition, are hypothesized to reduce health care expenditures and the resources devoted to medical care. Empirical evidence has been limited. The short- and long-run effects of an experiment closely resembling managed competition are analyzed. We examine effects on hospitals, technology diffusion, physicians, and health insurance premiums. The strategy reduces capital in hospitals, has minor effects on physicians and technology, and has only initial effects on average premiums.