Markets at Risk— Current and Future Challenges in a Managed Care Marketplace. B. Market Structure.


The number of HMOs has remained relatively stable for the past decade, probably reflecting a plateau in geographic extension to virtually all large and small metropolitan areas across the country. In addition, while merger activity among large multi-market companies in the mid-1990s was substantial, in many cases the mergers were motivated to give plans more complete national network coverage33. Acquisitions were often targeted at plans or companies that had presence or strength in markets where the acquiring plan was weak. Consequently, the net change in the number of plans has been quite small.

But there has been more consolidation in the industry as shown in Figure 7 in recent years with nearly two-thirds of all plans now owned by 10 “national” companies. The national nature of these companies remains uneven, in terms of having plans in all major markets, whether full product lines are available in each market, and in terms of how much negotiating leverage multi-market plans can muster across markets with highly uneven membership. The amount of negotiating leverage directly affects the ability of national plans to promote and attain preferred network arrangements and to achieve control over other operating conditions. Thus, they may be extraordinarily dominant in one market but a peripheral player in an adjacent one.

Figure 7. Proportion of HMO Enrollment in 10 Largest National Managed Care Firms, 1987-1997

Figure 7. Proportion of HMO Enrollment in 10 Largest National Managed Care Firms, 1987-1997Source: InterStudy Completitive Edge, various years

The abiding local character of health care has continued to make uniformity in plan structure, products, and practices an elusive goal. Conversely, local and regional plans have been able to maintain very strong positions in markets where they may be a dominant player with long standing providers and purchaser relationships34. These plans may be able to exploit and actually trade on provider-based xenophobic tendencies to bolster resistance to the entry of national plans that might disrupt the local equilibrium. For the regional players, the challenge has been to determine if regional or even national expansion is a reasonable strategy to attract multi-market employers or leverage locally based expertise and experience to a larger and more geographically dispersed scale. Grossman has described this trend and also some of the notable shortfalls and stumbles that have ensued, most notably among some of the high profile HMOs in the Boston market that tried and failed to become New England-wide health plans.

The remaining Blue Cross and Blue Shield plans (currently 47 in numbers) represent a special, and increasingly diverse, illustration of the complex lattice work that multi-market companies are attempting to create through selective acquisition of individual plans across the country—both as for profit and not for profit companies. At the same time, the national federation of plans remains an important vehicle for enabling Blues franchise holders to offer multi-site purchasers a national, brand-named network as well as the means to negotiate and resolve cross-market issues35.

  1. M. Hasan, “Let’s End the Not-for-Profit Charade,” New England Journal of Medicine, 334(16):1055- 57.
  2. Salomon Smith Barney, Managed Care and Hospital Management Overview, New York: Salomon Smith Barney, 1999.
  3. G. Harris, M. Ripperger, and H. Horn, “Managed Care at a Crossroads,” Health Affairs, 19(1):157-163, 1999.