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The Effect of Managed Care on Health Care Providers

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  • Laurence C. Baker
  • Martin L. Brown

Abstract

We investigate the effect of managed care on the health care system, focusing on the effects managed care could have on the number and types of health care providers and their efficiency. By influencing providers, managed care may change the structure and performance of the entire health care system in ways that influence care provided to all patients. We begin by discussing the mechanisms by which managed care influences health care providers, concentrating on shifts in market demand and increases in the amount of attention paid to price in provider choices. We develop a theoretical framework that illustrates these effects. We then empirically examine the relationship between managed care activity and mammography providers. We find evidence that increases in HMO activity are associated with changes in the number of providers, the volume of services produced by each provider, and the prices they charge. This evidence is consistent with the view that HMOs can have broad effects on health care providers.

Suggested Citation

  • Laurence C. Baker & Martin L. Brown, 1997. "The Effect of Managed Care on Health Care Providers," NBER Working Papers 5987, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5987
    Note: HC
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    References listed on IDEAS

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    1. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 493-510.
    2. Laurence C. Baker & Kenneth S. Corts, 1995. "The Effects of HMOs on Conventional Insurance Premiums: Theory and Evidence," NBER Working Papers 5356, National Bureau of Economic Research, Inc.
    3. repec:aph:ajpbhl:1994:84:1:50-55_3 is not listed on IDEAS
    4. K. Newey, Whitney, 1985. "Generalized method of moments specification testing," Journal of Econometrics, Elsevier, vol. 29(3), pages 229-256, September.
    5. Noether, Monica, 1988. "Competition among hospitals," Journal of Health Economics, Elsevier, vol. 7(3), pages 259-284, September.
    6. Baker, Laurence C & Corts, Kenneth S, 1996. "HMO Penetration and the Cost of Health Care: Market Discipline or Market Segmentation?," American Economic Review, American Economic Association, vol. 86(2), pages 389-394, May.
    7. Baker, Laurence C., 1997. "The effect of HMOs on fee-for-service health care expenditures: Evidence from Medicare," Journal of Health Economics, Elsevier, vol. 16(4), pages 453-481, August.
    8. Charles E. Phelps, 1992. "Diffusion of Information in Medical Care," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 23-42, Summer.
    9. Feldman, Roger & Dowd, Bryan, 1986. "Is there a competitive market for hospital services?," Journal of Health Economics, Elsevier, vol. 5(3), pages 277-292, September.
    10. Katz, Michael L, 1984. "Price Discrimination and Monopolistic Competition," Econometrica, Econometric Society, vol. 52(6), pages 1453-1471, November.
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    Cited by:

    1. repec:kap:iaecre:v:4:y:1998:i:4:p:398-410 is not listed on IDEAS
    2. Mas, NĂºria & Seinfeld, Janice, 2008. "Is managed care restraining the adoption of technology by hospitals?," Journal of Health Economics, Elsevier, vol. 27(4), pages 1026-1045, July.
    3. Bokhari, Farasat A.S., 2009. "Managed care competition and the adoption of hospital technology: The case of cardiac catheterization," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 223-237, March.
    4. Louise Sheiner & David M. Cutler, 1999. "The Geography of Medicare," American Economic Review, American Economic Association, vol. 89(2), pages 228-233, May.
    5. Kevin Frick & Neil Powe, 1998. "HMO coverage of cosmetic procedures: Response to market competition," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 4(4), pages 398-410, November.
    6. Mas, Nuria, 2005. "Managed care and the safety net: More pain for the uninsured?," IESE Research Papers D/596, IESE Business School.
    7. Richard Arnould & Marianne Bertrand & Kevin F. Hallock, 2000. "Does Managed Care Change the Mission of Nonprofit Hospitals? Evidence From the Managerial Labor Market," NBER Working Papers 7924, National Bureau of Economic Research, Inc.

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    JEL classification:

    • I1 - Health, Education, and Welfare - - Health

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