Competition in Health Care May Not Result in Better Quality

April 7, 2005

(University Park, Pa) — For several decades, competition within the healthcare industry has been touted as the way to curb rising prices by reducing inefficient practices and improving quality and safety. But a study of 341 HMOs suggests that more competition may not automatically solve price and quality-of-care problems as hoped for by legislators, regulators and employers.

“Our findings show that less, not more, competition was associated with better health plan performance in several — though not all — factors, says Dennis Scanlon, Penn State associate professor of health policy administration and lead author of the study. “This finding seems counterintuitive, but it is possible that more HMO competition may result in providers finding it difficult to respond to competing quality initiatives. Also, competition may be focused more on driving down the plansí premiums, resulting in less attention to quality.”

Scanlon, along with Shailender Swaminathan of the University of Alabama at Birmingham; Michael Chernew of the University of Michigan; James Bost of the University of Arkansas for Medical Sciences; and John Shevock of Penn State, analyzed data from 341 HMO plans operating across various markets in the United States. They examined HMO enrollment and the most widely used measures of HMO performance: the Health Plan Employer Data and Information Set (HEDIS) and the Consumer Assessment of Health Plans Survey (CAHPS). They published their findings in the April issue of Medical Care.

HEDIS measures the percentage of a health planís eligible population that is compliant with recommended care guidelines such as immunization rates for children and teens; chronic illness care; and womenís care (e.g. breast cancer screening rates). CAHPS includes membersí opinions about their health care and services provided by their health plan and its affiliated physicians.

Other managed care programs such as preferred provider organizations (PPOs) should be studied as well, but similar data is not routinely collected for these other insurance options and hence is not available for analysis — even though PPOs have passed HMOs in popularity for the employed population, Scanlon notes.

However, if one compares the performance of HMOs against HMO competition, HMOs in less competitive markets perform better on HEDISí womenís care measures and the CAHPS factors but show no difference in performance on childhood or adolescent immunization or the management of chronic illness. Performance is better in markets with a greater percentage of HMO enrollment, researchers say.

Another problem with the quality measurement systems is that even HMOs are not required to publicly report or disclose their results on the HEDIS and CAHPS measures. The researchers found that plans that make their data available publicly performed significantly better on both HEDIS and CAHPS measures.

“Since public reporting remains voluntary, consumers cannot make informed decisions if comparable data for plans is not available,” Scanlon says. “Therefore, health plan report cards should list those plans that donít make public disclosures.”

For-profit plans performed similarly with not-for-profit plans as well, the study says.

The researchers were looking at the relationship between HMO quality and HMO competition at a point in time, and hence additional research is needed to identify the effect of changes in competition over time.

“While our study offers some insight into the association between competition and quality, policymakers, regulators and plan purchasers such as employers need better evidence to understand and evaluate the benefits and costs of competitive versus regulatory policies,” Scanlon notes.

“The healthcare environment is complicated and multi-layered, and perhaps the most effective change may require a mix of approaches involving competition and regulation to ensure patient safety and quality of care. For example, the automotive industry is highly competitive, but certain elements such as emissions, fuel efficiency and safety measures are regulated.”

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Editors: Dr. Scanlon can be reached at (814) 865-1925 or For additional information, please contact Vicki Fong in the Penn State Office of Science and Research Information at (814) 865-9481 or