Hospitals and Health Maintenance Organizations: An Analysis of the Minneapolis-St. Paul Experience

Minneapolis-St. Paul is recognized as a prime example of health care competition. Policymakers and others have been asked to look to the Twin Cities as a model upon which to base new competitive initiatives in the health care sector. Yet little is known about the impact of Health Maintenance Organizations (HMOs) on other health care providers. This study examines the effects of the area's seven health maintenance organizations on the local hospital community. Three questions are addressed. First, is the situation in the Twin Cities unique? A comparison of case study findings and the available literature together with hospital data from similarly HMO-penetrated markets suggests that the Twin Cities' hospital market is indeed different. Second, what is the nature of hospital-HMO interaction? The flexibility of contracting apparently allows hospitals to affiliate successfully with an HMO under a variety of service and reimbursement agreements. Third, what effect has HMO activity had on community-wide utilization? While HMO enrollees clearly use fewer hospital days and the trend in the community is toward fewer days, attributing the change to HMOs is difficult. A large portion of the differences between HMO and community-wide utilization levels is attributable to differences in population.