Health maintenance organizations (HMOs) and other managed-care organizations are becoming less effective at securing discounts from hospitals, according to a paper co-authored by William White, professor of policy analysis and management and director of the Sloan Program in Health Administration in Cornell's College of Human Ecology, and published in the Journal of Health Economics.

In the early 1990s, managed-care providers were successful in spurring competition among hospitals and health-care providers, which allowed them to secure deep discounts. To make that system work, they needed to restrict the choices of providers available to their members -- an aspect that consumers didn't like. As a result, many plans began to offer more choice to their members. White and his co-authors theorized that this move diluted the plans' abilities to secure discounts from health-care providers.

To test this hypothesis, they studied trends in the prices of hospital care in urban areas in California and Florida. Examining data for 1990 to 2003, they found that managed-care organizations secured growing discounts in the 1990s, but that these discounts peaked in 2001 and declined between 2001 and 2003.

"Many have talked about the impact of consumer 'backlash' on managed care, but this is one of the first studies to document that the ability to win discounts is declining," White said. "There's still a big role for managed care, but if you were counting on this model as a sole means of containing costs, think again."

Other authors of the study are David Dranove of the Kellogg School of Management at Northwestern University, Richard Lindrooth of the Medical University of South Carolina and Jack Zwanziger of the University of Illinois at Chicago. The study was funded by the Robert Wood Johnson Foundation Changes in Health Care Financing and Organization Initiative.

Sheri Hall is the assistant director of communications for the College of Human Ecology.