HMO development: threat or opportunity for hospitals?

Many hospitals presently find themselves at a vulnerable stage in their development. The increased efficacy of antibiotics, together with the population's increased life span and decreasing birth rate, have reduced the need for the kind of acute inpatient care that hospitals traditionally have provided. Moreover, hospitals now are feeling pressure from federal and state regulatory agencies to eliminate approximately 20 percent of the nation's acute-care beds. Concurrent with the population's changing health needs and with the increasing regulatory pressure from government, the acute-care hospital also must contend with the advent of a rival medical care delivery organization--the health maintenance organization (HMO)--whose primary goal is to provide quality medical services in a cost-efficient manner. One of the most important ways in which HMOs contain costs is by attempting to reduce significantly the rate of hospitalization of their members, an approach that threatens the very livelihood of some hospitals. The authors describe five alternative strategies that hospitals can adopt to meet the potential threat of HMO's--filibustering, passive acceptance, direct sponsorship, accommodation, or strong support. They maintain that the latter of these stragegies, strong support, places hospitals in the most favorable position to convert the threat of HMO development into an opportunity to build a mutually beneficial relationship.