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Does Capitated Contracting Improve Efficiency? Evidence from California Hospitals

Chu, Hsuan-Lien; Liu, Shuen-Zen; Romeis, James C.


Abstract: This study examines the effect of capitated contracting on hospital efficiency to better understand strategies related to the recent financial crisis in the California health care market. Our findings indicate that less efficient hospitals are more likely to participate in capitated contracting. As a result, hospitals with capitated contracts are, on average, less efficient than hospitals without capitated contracts. Hospital efficiency generally increases with respect to the degree of capitation involvement. The efficiency improvement, however, becomes insignificant when capitation exposures are already high. Thus, hospital executives should not be overly optimistic about efficiency gains obtained in capitated contracting and should control the degree of capitation involvement.

Hsuan-Lien Chu, PhD, is Assistant Professor, Department of Accounting, College of Commerce, National Taipei University, Taiwan, ROC.

Shuen-Zen Liu, PhD, is Associate Professor, Department of Accounting, College of Management, National Taiwan University, Taiwan, ROC.

James C. Romeis, PhD, is Professor, Health Services Research, School of Public Health, Saint Louis University, St. Louis, Missouri. E-mail:

© 2004 Lippincott Williams & Wilkins, Inc.