Data Envelopment Analysis to determine efficiencies of health maintenance organizations

We use Data Envelopment Analysis (DEA) to measure the relative technical efficiencies of 164 HMOs licensed to practice in the United States in 1995 with data collected from the American Association of Health Plans. Health care output measures used in the analysis are the number of commercial, Medicare and Medicaid lives covered in each plan. Inputs to the model are health care utilization measures such as the number of medical and surgical inpatient days, number of maternity and newborn stays in days, number of outpatient and emergency room visits and the number of non‐invasive and invasive procedures performed on patients in an ambulatory setting. Mean efficiency of health plans was 40% (of the most efficient). We use multivariate analysis to try and explain variations in efficiency. Enrollment influences efficiency, with larger HMOs being more efficient than those with fewer enrollees. Plans with a more even distribution of Commercial, Medicare and Medicaid patients were more efficient on average than plans with heterogeneous mixes in enrollment. HMOs with Medicare patients are significantly less efficient, with efficiency decreasing with increasing Medicare participation in plan membership. Health plans in operation for longer periods of time had greater outputs with the same inputs. Health plans that had a majority of their enrollees in network or IPA type arrangements were more efficient as were for‐profit plans compared to not‐for‐profits. Policy implications are discussed.