Factors related to the provision of hospital discounts for HMO inpatients

Using 1986 AHA hospital survey data, we analyzed hospital-HMO contract provisions, hospital operating characteristics, and market conditions for a national sample of 801 hospitals with HMO contracts to determine the factors related to provision of a discount and the magnitude of the discount if present. Seventy-eight percent of the hospitals reported that at least one of their HMO contracts provided a discount for inpatient services. Risk-sharing provisions, the number of hospitals within a five-mile radius, the proportion of the population enrolled in HMOs, and the number of HMOs operating in the metropolitan statistical area (MSA) were directly related to provision of discounts. Public hospitals were less likely than other facilities to provide discounts. For the magnitude of the discounts, risk-sharing provisions and the number of hospitals within a five-mile radius were again related, as was the number of HMOs operating in the MSA--but this time the number-of-HMOs variable had an inverse relationship. The results suggest that increased HMO market activity does result in price competition for hospital services but that hospital discounting strategies are extremely complex and may not follow conventional market theories. Hospitals appear to be using contracts both to stabilize their relationships with HMOs and increase market share, and they are increasingly giving discounts to achieve those ends.