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Competition and Health Plan Performance: Evidence from Health Maintenance Organization Insurance Markets

Scanlon, Dennis P. PhD*; Swaminathan, Shailender PhD; Chernew, Michael PhD; Bost, James E. PhD§¶; Shevock, John MSM*

doi: 10.1097/01.mlr.0000156863.61808.cb
Original Article
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Objective: We sought to assess whether health maintenance organizations (HMOs) operating in competitive markets, or markets with substantial HMO penetration, perform better on the standardized Health Plan Employer Data and Information Set (HEDIS) and Consumer Assessment of Health Plans Survey (CAHPS) measures.

Study Design: We performed a secondary analysis of nonexperimental, cross-sectional data.

Data Sources: Data were obtained from a variety of sources, including the National Committee for Quality Assurance (NCQA), Interstudy, the Area Resource File, the U.S. Office of Personnel Management, and the U.S. Department of Labor.

Methods: Multiple Indicator Multiple Cause models were used to simultaneously estimate 6 latent quality variables from 35 HEDIS and CAHPS measures and to relate these latent variables to HMO competition and HMO penetration while controlling for other health plan and market characteristics.

Principal Findings: Greater competition, as measured by the Herfindahl index, was associated with inferior health plan performance on 3 of 6 quality dimensions. Plans in markets with greater HMO penetration perform better on HEDIS- but not CAHPS-based dimensions of performance. Plans that make their data available publicly perform significantly better on both the HEDIS and CAHPS domains, performing one third to three quarters of a standard deviation better than plans that don't make their results available publicly.

Conclusions: Plans in more competitive markets in 1999 did not achieve better quality after controlling for other important covariates, although plans in markets with a high degree of HMO penetration are performing better on the HEDIS quality dimensions. Although our study design cannot determine causality, the results suggest reason to revisit the belief that competition among HMOs will inherently improve quality.

From the *Pennsylvania State University, University Park, Pennsylvania; the †University of Alabama at Birmingham, Birmingham, Alabama; the ‡University of Michigan, Ann Arbor, Michigan; the §University of Arkansas for Medical Sciences, Little Rock, Arkansas; and the ¶National Committee for Quality Assurance, Washington, DC.

Supported by a grant from the Agency for Healthcare Research and Quality (AHRQ) grant # P01-HS10771.

Reprints: Dennis P. Scanlon, PhD, Associate Professor of Health Policy & Administration, Department of Health Policy & Administration, The Pennsylvania State University, University Park, PA 16802-6500. E-mail: dpscanlon@psu.edu.

© 2005 Lippincott Williams & Wilkins, Inc.