HMOs and the efficiency of healthcare delivery

HMOs and other forms of managed care continue to grow rapidly and remain the centerpiece of this nation's policies for health system reform. Despite a growing public and legislative backlash at managed care, there is no comprehensive theory of HMOs to guide policymakers and analysts. It is not yet clear whether managed care improves society's allocation of resources to and within the health sector. After examining HMOs within the context of Coase's theory of the firm, I argue that HMOs share characteristics with collective goods. This framework, and the expanded agency role of physicians under managed care, is used to evaluate the equity and efficiency characteristics of a system of competing HMOs. Other concerns that are increasingly associated with managed care also are addressed.