Trends in Hospital Cost and Revenue, 1994-2005

How Are They Related to HMO Penetration, Concentration, and For-Profit Ownership?

Examining two 5-year periods, one when HMO enrollment was increasing and one when it was decreasing, shows that HMOs had an effect on lowering hospital costs and revenues, albeit a diminishing one. This study looked at trends in hospital cost and revenue relative to different levels of HMO market structure. Prior to 2000, high HMO penetration was found to be associated with cost containment. But that relationship changed and weakened between 2000 and 2005 when HMO enrollment started to decline.

The researchers focused on annual operating costs and annual total net patient revenue at non-federal hospitals in metropolitan statistical areas, specifically the following variables, among others:

  • Hospital cost and revenue;
  • Hospital price and adjusted patient days;
  • HMO penetration, concentration and for-profit HMO share;
  • Hospital competition; and
  • Medicare and Medicaid financial pressures.

As HMO penetration increased 10 percentage points between 1994 and 2000, there was a four percent reduction in hospital operating costs. Between 2000 and 2005, however, HMO influence and bargaining power diminished, resulting in a two percent cost reduction, which translated to an increase of $5.6 billion in hospital revenues during the second period.

Hospital costs and revenues continue to change as complex health care markets also do.