Price competition and hospital cost growth in the United States (1989-1994)

In recent years, most health care markets in the United States (US) have ex perienced rapid penetration by health maintenance organizations (HMOs) and preferred provider organizations (PPOs). During this same period, the US ha s also experienced slowing health care costs. Using a national database, we demonstrate that HMOs and PPOs have significantly restrained cost growth a mong hospitals located in competitive hospital markets, but not so in the c ase of hospitals located in relatively concentrated markets. In relative te rms, we estimate that HMOs have contained cost growth more effectively than PPOs. Copyright (C) 1999 John Wiley & Sons, Ltd.