Policymakers have increasingly turned towards competition to control hospital costs. Key to these efforts are selective contracting programs, which are intended to increase price competition amongst health care providers. This approach, a common feature of HMO and PPO health insurance plans, has spread rapidly throughout the country. Despite the widespread growth of such programs (more than 50 million people are covered by HMO and PPO plans), very little is known about their effects. Using a unique market-based database, this study will investigate how the competitiveness of three linked markets -- that of hospital, physician, and health insurance services -- affects hospital costs, prices, service intensity and patient outcomes. In addition, exploratory analyses of the effects of the structure of these three markets on health insurance premiums will be conducted. The research methods include multivariate analysis at both the hospital level and employer level. The study will use data from California, the first state to enact legislation promoting price competition through selective contracting.
