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Article
November 20, 1991

Market Forces and Health Care Costs

Author Affiliations

Dr Enthoven consults for Kaiser Permanente and owns stock in US Healthcare and United Healthcare.
From the Stanford (Calif) University Graduate School of Business.

Dr Enthoven consults for Kaiser Permanente and owns stock in US Healthcare and United Healthcare.
From the Stanford (Calif) University Graduate School of Business.

JAMA. 1991;266(19):2751-2752. doi:10.1001/jama.1991.03470190099038
Abstract

For those who pay the hospital bills, Professor Robinson's carefully researched article contains good news and bad news.1

The good news is that market forces, where present, helped to restrain the growth in hospital cost per case in California. In 1982, the legislature overturned the previous "free choice of provider" provision in the insurance code and authorized selective contracting by insurers. Robinson finds that "only when FFS [fee-for-service] plans are legislatively permitted to follow HMOs in contracting with hospitals on the basis of price can HMO market penetration be expected to reduce hospital cost inflation."

The bad news is that market forces did not work very effectively, certainly not well enough to solve the problem of growth in hospital costs. Despite the growth and prevalence of HMOs in California, average hospital cost per case grew 74.5% from 1982 to 1988. Why didn't market forces work better? The

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