An integrated theory of provider behavior in Health Maintenance Organizations

It has been consistantly demonstrated in the literature that reduced medical care expenditures for Health Maintenance Organization (HMO) enrollees results from reduced hospital utilization. The cause of such behavior on the part of the HMO provider has generally been attributed to the prepayment or capitation method of financing the delivery of medical care or to the organization dynamics. This paper suggests that the problem with trying to attribute the cause of reduced hospitalization to either the payment mechanism or group dynamics is that the latter is a manifestation of the former. That is, peer review activities emerge as the result of fixed budget financing and emanate from the entity at risk. The task then becomes one of understanding the relationship between risk, incentive, behavior, and the identification of the entity at risk. Using the risk model, it can be seen that, depending on the entity perceiving the risk, controls on provider behavior can be implicit or explicit. It can also be seen that, depending on the magnitude of the perceived risk, controls can be stringently or loosely applied, or nonexistent. Much of the ambiguity in the literature regarding HMO provider behavior can be explained by the risk model developed in this work.