The impact of non-IPA HMOs on the number of hospitals and hospital capacity.

Concentration in the hospital market could limit the success of health care reform strategies that rely on managed care to constrain costs. Hospital market capacity also is important because capacity affects both costs and the degree of price competition. Because managed care plans, particularly non-individual practice association (non-IPA) model HMOs, practice a less hospital-intensive style of care, consolidation and downsizing in the hospital market potentially will accompany managed care growth, influencing the long-run effectiveness of managed care cost-containment strategies. Using Standard Metropolitan Statistical Area (SMSA) data from 1982 and 1987, a 10-percentage point increase in non-IPA HMO market share is estimated to reduce the number of hospitals by about 4%, causing an approximate 5% reduction in the number of hospital beds. No statistically significant relationship is found between non-IPA HMO penetration rates and hospital occupancy rates.