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Does Spending on Medical Services Change as HMOs Grow and Mature?


  • Patricia Born
  • Rosalie Liccardo Pacula


This research examines the cost structure of a nationally representative sample of HMOs from 1991-1994 to determine whether cost savings achieved through enrollment growth and age of the plan are shared with any of the factors of production. The data are obtained from Health Care Investment Analysts. A generalized translog cost function is used to derive factor share equations for four intermediate groups of inputs used by an HMO: physician services, other medical provider services, hospital services and administrative services. We estimate the system of annual factor shares using seemingly unrelated regression analysis and find that both plan size and age have a significantly positive effect on the level of plan expenditure on physicians, other medical providers and hospitals. Examination of the changes in factor shares over time, however, indicates that large changes in membership have no significant effect on the amount of resources dedicated to physicians. Only hospitals see a significant increase in the change in factor share at the expense of administrative services.

Suggested Citation

  • Patricia Born & Rosalie Liccardo Pacula, 1998. "Does Spending on Medical Services Change as HMOs Grow and Mature?," NBER Working Papers 6423, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6423
    Note: HE

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    References listed on IDEAS

    1. Wholey, Douglas & Feldman, Roger & Christianson, Jon B., 1995. "The effect of market structure on HMO premiums," Journal of Health Economics, Elsevier, vol. 14(1), pages 81-105, May.
    2. Wholey, Douglas & Feldman, Roger & Christianson, Jon B. & Engberg, John, 1996. "Scale and scope economies among health maintenance organizations," Journal of Health Economics, Elsevier, vol. 15(6), pages 657-684, December.
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    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance


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