Patient channeling to select providers is considered to be the most important tool available to managed care plans for generating price competition. The ability of managed care plans to steer patients appears to be widely accepted assumption, as two recent antitrust decision indicate (Dubuque,Iowa and Joplin, Missouri). In both cases, hospital mergers were sanctioned, not considered anti-competitive, under the assumption that managed care plans could credibly shift their beneficiaries to other distant providers if the merged hospitals attempted monopoly pricing. Despite the importance of this aspect of managed care, no published study test this hypothesis. We will conduct a series of empirical analyses to test whether selective contracting and price competition has altered patient admission and travel patterns, and if so, whether greater regionlization is evident at providers offering lower prices and/or better outcomes. In other words, are patients traveling further for hospital services as a result of managed care and price competition? And has managed care, selective contracting and price competition led to larger geographic markets for inpatient hospital care? The analyses will use patient level discharge data and provider characteristics for the period 1984-1995 from California to evaluate changes in travel patterns and hospital market size. California, with over a decade of managed care experience, mature and highly competitive markets, and excellent data, provides a strong setting to test whether managed care organizations can successfully market plans requiring greater travel in exchange for cost savings. The analyses will be conducted at three levels, including the patient, the zip code, and the hospital level. The results of this study will be of great interest to antitrust regulators and state policy makers charged with overseeing the massive transformation taking place in the health care industry in general, and hospital markets in particular.
