California Center for Population Research

Many observers have blamed HMOs for increasing financial pressures on private hospitals and causing them to cut back on the provision of charity care. We examine this issue using data on all hospital discharges in California between 1988 and 1996. We find that public hospitals in counties with higher HMO penetration do take on a larger share of the county's charity caseload. However, these public hospitals also take on larger shares of most other types of patients. At the hospital level, we find little evidence that either for-profit or non-profit private hospitals respond to HMO penetration by turning away uninsured and Medicaid patients. On the contrary, in the for-profit sector higher HMO penetration is linked to reductions in the share of privately insured patients in the caseload, and corresponding increases in the share of Medicare patients and Medicaid births. Since HMO penetration reduces the price paid by privately insured patients they may be less attractive to for-profit hospitals relative to the publicly insured.