Costs and Price Competition in California Hospitals, 1980-1990

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Critics of health care reform proposals that incorporate managed competition contend that it has never been broadly implemented. However, insurance plans that combine insurance with the provision of care have been widely implemented and have been tested most extensively in California. This DataWatch explores California's experience with health maintenance organizations (HMOs) and preferred provider organizations (PPOs), the introduction of which was followed by overall reductions in hospital costs. These reductions were larger in competitive markets. If implemented on a national scale, such selective contracting could be expected to reduce the growth of hospital costs even more rapidly than occurred in California.

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