HMO penetration and physicians' earnings

OBJECTIVES. The goal of this study is to estimate whether cross-sectional v ariations in enrollment in health maintenance organizations (HMOs) affected physicians' earnings and hourly income in 1990. METHODS. Using data from a nationally representative sample of 4,577 younge r physicians (<45 years) conducted in 1991, we estimated a partial reduced- form model of physicians annual income and per hour income. We tested wheth er HMO penetration is endogenous and used the instrumental variables approa ch to obtain unbiased estimates. RESULTS. HMO penetration had a negative and statistically significant impac t on physicians earnings in 1990. A doubling of the average level of HMO pe netration in the market is estimated to reduce annual earnings by 7% to 10. 7%, and hourly earnings by approximately 6% to 9%. CONCLUSIONS. It appears that HMOs were successful in reducing physicians' a nnual and per hour earnings in 1990, presumably through a combination of fe wer visits and lower payment rates for people covered by HMOs. Although the se results cannot be generalized to all physicians, the experience of a you nger cohort of physicians may still be a good indicator of the future effec ts of HMOs because younger physicians may be more susceptible to market for ces than older and more established physicians. Moreover, these results may be somewhat conservative because they reflect market behavior in 1990, sev eral years before the rapid growth and more aggressive market behavior of H MOs in recent years.