How Managed Care Markets Are Evolving

Stage 1: Independent hospitals, physicians, employers, and HMOs; few affiliations; utilization high; 0-10% penetration. Examples: Birmingham, AL; Chapel Hill, NC.; Galveston, TX; Harrisburg, PA; Iowa City; Morgantown, WV; Newark; Omaha; Syracuse, NY.

Stage 2: Lead HMOs, PPOs, and medical groups emerge; loose provider networks and weak hospital affiliations form; excess inpatient capacity develops; 11-30% HMO penetration. Examples: Atlanta; Baltimore; Cincinnati; Dallas; Indianapolis; New Orleans; New York City; Philadelphia; Pittsburgh; Richmond; St. Louis; Tampa/St. Petersburg.

Stage 3: Lead HMOs, PPOs and medical groups achieve critical mass, begin to consolidate; hospital systems form and aggressively recruit/compete for primary care group practices; hospital beds close; 31-50% HMO penetration. Examples: Boston; Chicago; Denver; Detroit; Houston; Milwaukee; Phoenix; San Francisco; Seattle; Tucson; Washington, D.C.

Stage 4: Purchasers contract with integrated medical groups and hospital/physician systems to provide comprehensive services to their beneficiaries; capitation prevails; risk shifts to primary care medical groups; greater than 50% HMO penetration. Examples: Los Angeles; Minneapolis/St. Paul; San Diego; Worcester, MA.

Reprinted with permission from University Hospital Consortium, Oak Brook, IL.