Inquiry--Spring 2004
This paper used financial data from health maintenance organizations (HMOs) in the United States from the period 1985 to 2001 to examine the determinants of claims payable—the dollar amount of services rendered to enrollees but for which the HMO has not yet paid providers, such as physicians and hospitals. Claims payable management is important because delaying payments to providers can jeopardize provider operations and reduce HMO operational flexibility. The results show that HMOs manage claims payable with a multi-period perspective designed to evoke favorable responses and to avoid unfavorable ones from external parties, and to maintain flexibility for unexpected conditions. Higher HMO profitability, quicker receipt of premiums by the HMO, increased provider involvement, and greater local control of the HMO lead to faster payment to providers. Implications for HMO managers, providers, employers, and regulators are discussed.