Managed care and the scale efficiency of US hospitals

Managed care penetration has been partly responsible for slowing down increases in health care costs in recent years. This study uses a 1992-1996 Health Care Utilization Project sample of hospitals to analyze the relationship between managed care penetration in local insurance markets and hospital scale efficiency. After controlling for hospital and market area variables, we find that managed care insurance, particularly the preferred provider type, is associated with increases in hospital scale efficiency in tertiary cases. The results presented here are consistent with the view that managed care can lead to reductions in health cost inflation by controlling the diffusion of technology via improvements in the scale efficiency of hospitals.