Metropolitan Areas Experience First-Annual Drop in HMO Enrollment

InterStudy Releases Latest Findings in its Updated Regional Market Analysis.

St. Paul, MN -- Metropolitan areas experienced the first-annual decrease in HMO enrollment between July 1, 1999 and July 1, 2000, according to the latest edition of InterStudy Publications Regional Market Analysis. While slightly more MSAs gained enrollees than lost enrollees, overall enrollment in metropolitan areas decreased by almost 500,000 enrollees or 0.7%. The decrease in MSA enrollment mirrored the overall industry trend. During the same time, total HMO enrollment dropped by more than 700,000 enrollees or 0.9%. Rural areas lost enrollees at a faster rate than metro areas, losing 2.9% of their enrollees between July 1, 1999 and July 1, 2000.
These and other industry trends appear in the recently released Regional Market Analysis 11.1, which is Part III of InterStudy Publications Competitive Edge series and joins companion reports HMO Directory 11.1 and HMO Industry Report 11.1.

The Regional Market Analysis 11.1 looks at the 325 Metropolitan Statistical Areas (MSAs) across the United States with active HMOs as of July 1, 2000. For each MSA, the report provides detailed information on HMO enrollment and market penetration as of July 1, 2000. The report also includes separate subdirectories of physician and hospital provider supply and reimbursement data, as well as benchmarks of HMO activity that can be used to compare MSAs nationwide. Highlights from the Regional Market Analysis 11.1 include the following:
MSAs Experience First-Annual HMO Enrollment Decrease: As of July 1, 2000, there were 72.9 million enrollees in MSAs, compared to 73.3 million as of July 1, 1999. MSAs lost almost 500,000 HMO enrollees or 0.7% of their total HMO enrollment. This marks the first-annual decrease in MSA HMO enrollment, and mirrors the decrease in HMO enrollment overall. Total HMO enrollment decreased by more than 700,000 enrollees or 0.9% during this time.
While metro areas experienced a drop in HMO enrollment overall, slightly more MSAs gained enrollees than lost enrollees. Of the 325 MSAs with HMO enrollment as of July 1, 2000, 151 lost enrollment since July 1, 1999. These 151 MSAs lost a total of 3.8 million enrollees. Conversely, 168 MSAs gained HMO enrollment totalling 3.3 million enrollees during this time. The remaining six MSAs are new to the Regional Market Analysis since July 1, 1999.
MSAs Lost Enrollment at a Slower Rate than Rural Areas: Metropolitan areas lost HMO enrollment between July 1, 1999 and July 1, 2000, but at a slower rate than non-metro areas. Enrollment in non-metropolitan areas decreased by 2.9% during this time, compared to the drop of only 0.7% in MSA HMO enrollment. Another way of looking at this is that while MSAs accounted for 90.9% of total HMO enrollment as of July 1, 2000, they accounted for only 69.7% of the decrease in total HMO enrollment between July 1, 1999 and July 1, 2000.
HMO Enrollment Continues to be Concentrated in Large Markets: Almost three-quarters (73.6%) of the 72.9 million HMO members in metropolitan areas are in large markets with populations of
1 million or more. Another 20.7% are in medium-sized markets with populations between 250,000 and 999,999. The remaining 5.6% of HMO members are in small markets with populations less than 250,000.
The total HMO enrollment of an MSA ranges from 14 in Albany, Georgia, to more than 5.2 million in Los Angeles-Long Beach, California.

Average HMO Penetration Rate Continues to Drop: The HMO penetration rate for all metropolitan markets fell by 1.4% between July 1, 1999 and July 1, 2000, reflecting the annual decrease in total HMO enrollment of 0.9% for the same period. HMO penetration in metropolitan markets was 33.8% as of
July 1, 1999, dropping slightly to 32.4% as of July 1, 2000. This continues a trend observed between January 1, 1999 and January 1, 2000, when the HMO penetration rate for all metro markets decreased by 0.4%.

Large, medium and small markets all saw a decrease in average HMO penetration between July 1, 1999 and July 1, 2000, with small markets experiencing the smallest decrease. HMO penetration in small markets dropped just 0.5% from 19.1% as of July 1, 1999 to 18.6% as of July 1, 2000. Large markets saw a decrease from 38.0% to 36.5% during this time.

Salt Lake Citys penetration rate of 34.7% exactly matches the 50th percentile for large metropolitan areas. Three-quarters of the large MSAs have penetration rates of 44.2% or less. The midpoint of 34.7% for large markets indicates that half of all large MSAs have higher penetration rates, and the other half have penetration rates below 34.7%.
As of July 1, 2000, there were 24 MSAs with penetration rates of at least 50.0%. These 24 MSAs accounted for 18.4 million enrollees, or 25.3% of all HMO enrollment in a metro area. As shown in the table on the following page, half of the MSAs with penetration rates of 50.0% or higher are located in California. New Haven-Meriden, Connecticut, was the most highly penetrated MSA with a penetration rate of 73.3%.
There were 145 MSAs with penetration rates of 25.0% or more as of July 1, 2000. These MSAs served a combined enrollment of 61.7 million members, or approximately 84.7% of all HMO enrollment in MSAs.
Seventy-six MSAs had penetration rates below 10.0% as of July 1, 2000, representing just 1.2% of all HMO enrollment in an MSA (857,142 enrollees). Of these 76 MSAs, eight had penetration rates below 1.0%.

Large Markets Tend to be More Competitive Than Smaller Markets: The Index of Competition (IOC) is based on the Herfindahl Index, which is the squared sum of the HMO market shares of all HMOs operating in a given metropolitan market. The IOC equals one minus the Herfindahl. IOC values range from zero (a monopoly) to one (competition among numerous HMOs with similar market shares). As of July 1, 2000 there were nine small markets served by only one HMO, meaning the IOC is zero. As more HMOs enter a market, the IOC increases.

Salt Lake City has an IOC of 0.710, falling slightly below the 25th percentile for large markets. Only ten other large markets have an IOC lower than Salt Lake Citys.

Seven MSAs Gained More Than 100,000 HMO Enrollees: The seven MSAs listed on the following page each gained more than 100,000 HMO enrollees between July 1, 1999 and July 1, 2000. These seven markets added more than 900,000 enrollees, accounting for 27.5% of the 3.3 million enrollees gained by all 168 MSAs experiencing enrollment growth during that time.
Five of the seven fastest-growing MSAs were in California. Overall, California MSAs accounted for 32.1% of the enrollment gained by the 168 MSAs adding enrollment, and only 0.5% of the enrollment lost by the 151 markets losing enrollees.
Growth in the seven fastest-growing MSAs was due to gains made by already existing HMOs rather than enrollees added by startup HMOs. The average HMO penetration rate for these seven MSAs was 56.6% as of July 1, 2000, more than double the national average of 24.4%. These seven MSAs were also highly penetrated at the start of the period. As of July 1, 1999, they had an average penetration rate of 51.8%, compared to the national average of 25.6%.

South Atlantic and East North Central Regions Have More MSAs Losing Enrollment: The largest number of MSAs with enrollment losses (29) came from the South Atlantic states of Delaware, the District of Columbia, Georgia, Florida, Maryland, North Carolina, South Carolina, Virginia and West Virginia. The East North Central region (Illinois, Indiana, Michigan, Ohio and Wisconsin) had 23 MSAs losing enrollment, followed closely by the West South Central region (Arkansas, Louisiana, Oklahoma and Texas) with 20, the Northeast (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont) with 19 and the Mid-Atlantic (New Jersey, New York and Pennsylvania) with 18. The following map details where MSAs lost HMO members.
More than half of the 151 MSAs (78) that lost enrollment between July 1, 1999 and July 1, 2000 lost fewer than 10,000 members. Ten MSAs lost more than 100,000 enrollees during this time.

Indicators of Physician and Hospital Supply Available for Metro Markets: The Regional Market Analysis 11.1 provides data on physicians and hospitals by metro market, including the number of primary and specialty care physicians per 1,000 population, the number of hospitals serving an MSA, and the number of hospital beds per 1,000 population.

Individual markets, such as Salt Lake City, can be compared to the overall metro market percentiles. For instance, Salt Lake City falls at exactly the 25th percentile for the number of primary care physicians per 1,000 population and slightly above the 50th percentile for the number of specialists per 1,000 population. Salt Lake City offers a comparably higher number of hospitals than other MSAs, though the available hospital beds per 1,000 population is below the 25th percentile for all MSAs.

MSA-Level Data Provided on Physician and Hospital Reimbursement: The Regional Market Analysis 11.1 provides estimates for individual MSAs of the percentages of hospital services, primary care physician services, and specialty care physician services reimbursed through various methods. The report also provides reimbursement benchmarks for all metropolitan markets and includes information on general HMO reimbursement trends.
Over the past year, there was a shift toward HMO reliance on fee for service to reimburse primary care practitioners. Conversely, there was a shift away from HMO reliance on capitation to reimburse primary care physicians. As of July 1, 2000, 74.4% of all HMOs used fee for service and 62.5% used capitation to reimburse some or all primary care physician services. Relative value scale was used by 23.2% and salary by 5.8% of HMOs to reimburse some or all primary care physician services.

Fee for service remains the primary method of reimbursement for specialists, and is attracting increasing numbers of HMOs. Fee for service was used by 83.9% of HMOs to reimburse some or all specialty care physician services as of July 1, 2000, compared to 41.9% relying on capitation. Relative value scale was used by 25.2% and salary by 2.5% of HMOs to reimburse some or all specialty services.
Hospitals are most likely to be reimbursed through per diem payments. Per diem rates were used to reimburse some or all hospital services by 89.7% of HMOs as of July 1, 2000. Fee schedules were used by 77.5% of HMOs, diagnosis-related groups by 55.3%, and capitation by 24.7% to reimburse some or all hospital services.

HMOs are fairly evenly split in the numbers that rely exclusively on one method to reimburse primary and specialty care physicians and the numbers that combine two methods. However, HMOs are far more likely to reimburse hospital services through a combination of two or more methods than they are to reimburse hospital services through exclusively one method.
As of July 1, 2000, 43.6% of HMOs reimbursed primary care physicians exclusively through one type of reimbursement, 47.3% combined two methods, and 9.1% relied on three or four methods. To reimburse specialists, 54.0% used exclusively one method, 38.8% combined two methods, and 7.1% combined three or four methods. In contrast, only 10.0% of HMOs used exclusively one method to reimburse hospital services, 42.5% combined two methods, and 47.5% combined three or four methods.
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The InterStudy Competitive Edge series is published semi-annually by InterStudy Publications, a publications firm specializing in research and reports for market driven health care. Part I, the HMO Directory 11.1, was published in March. Part II, the HMO Industry Report 11.1, was published in April. The complete InterStudy Competitive Edge series (Parts I, II and III) is available for $610 (prepaid). Each book is also sold separately. The HMO Directory and Industry Report are available for $245 each (prepaid) and the Regional Market Analysis is available for $275 (prepaid). If you have any questions or would like to place an order, please call 800-844-3351, or visit our web site at www.interstudypublications.com.