Determinants of the New Entry of HMOs into A Medicare Risk Contract: A Resource Dependence-Diversification Model

TLDR: Pai et al. as discussed by the authors examined the determinants of the new entry of an HMO into a Medicare risk contract using a resource dependence-diversification model using a non-experimental, panel design with one year time lag.

Abstract: DETERMINANTS OF THE NEW ENTRY OF HMOS INTO A MEDICARE RISK CONTRACT: A RESOURCE DEPENDENCE-DIVERSIFICATION MODEL By Chih-Wen Pai, Ph.D. A dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy at Virginia Commonwealth University Medical College of Virginia Campus, Virginia Commonwealth University, 1 996 Major Director: Dolores G. Clement, Dr. P.H., Associate Professor The purpose of this study is to examine the determinants of the new entry of an HMO into a Medicare risk contract using a resource dependence-diversification model. x This study is conducted through a non-experimental, panel design with one year time lag. An HMO's market is defined as the service area. The primary sample for this study is composed of 440 HMOs that do not have a Medicare risk contract as of January 1 994. Data for the variables are extracted from the 1 994 and 1 995 InterStudy and Group Health Association of America (GHAA) directories, the 1 996 Area Resource File, the 1 994 County and City Data Book, the 1 993 County Business Patterns. Additional supplementary data on adjusted average per capita cost (AAPCC) and county-level Medicare beneficiaries are obtained from the Health Care Financing Administration. xi The dependent variable is discrete indicating an HMO's market entry. Independent variables are grouped into four categories: market structure, resource munificence, market price, and organizational attributes. Twelve hypotheses are tested using multivariate logistic regression. This analysis reveals that HMO enrollment size is a predominant, positive factor in predicting a new market entry. HMOs are also sensitive to the level of AAPCC rates in making a market entry decision. Results from hypothesis testing suggest that competition encourages a new market entry. The importance of resource munificence is not statistically supported. This study demonstrates the appropriateness of a panel design to verify a cause­ effect relationship and the applicability of the service area as an HMO's market. This study also contributes to the theoretical understanding of an HMO's market entry.