Output Efficiency of Health Maintenance Organizations in Florida

Abstract

We use data envelopment analysis (DEA) to measure the relative technical efficiencies of 28 HMOs licensed to practice in the State of Florida in the autumn of 1994. Health care output measures used in the analysis are number of commercial, Medicare and Medicaid members enrolled in each plan. Inputs to the model are capital assets, total expenditures on the provision of medical services and administrative expenses. We find differences in HMO efficiency scores and loss ratios (defined as the ratio of expenses on the provision of medical services to the total expenses incurred by the organization) across individual plans. Differences in efficiency measures across model type (staff, IPA, combination) and ownership types (for-profit, not-for-profit) are small but significant: staff models and for-profits are more efficient. In a multivariate model, we also find that large HMOs are more efficient and HMOs with Medicaid patients are significantly less efficient than other HMOs.