COSTS AND PRICE-COMPETITION IN CALIFORNIA HOSPITALS, 1980-1990

Critics of health care reform proposals that incorporate managed compe tition contend that it has never been broadly implemented. However, in surance plans that combine insurance with the provision of care have b een widely implemented and have been tested most extensively in Califo rnia. This DataWatch explores California's experience with health main tenance organizations (HMOs) and preferred provider organizations (PPO s), the introduction of which was followed by overall reductions in ho spital costs. These reductions were larger in competitive markets. If implemented on a national scale, such selective contracting could be e xpected to reduce the growth of hospital costs even more rapidly than occurred in California.