HMO behavior and stock market valuation: What does Wall Street reward and punish?

M. V. Pauly, A. L. Hillman, M. F. Furukawa, Jeffrey S McCullough

Research output: Contribution to journalArticle

1 Scopus citations

Abstract

This article analyzes the variation in returns to owning stock in investor-owned health maintenance organizations (IOHMOs) for the period 1994-1997. The average return (measured by the change in the market value of the stock plus dividends) was close to zero, but returns were positive and high for firms operating in local markets that were and remained less competitive, with large nationwide scope, and with less rapidly growing panels of contracted physicians. Indicators of a firm's strategic direction were abstracted from their annual reports; firms pursuing a merger or acquisition strategy, and those emphasizing a utilization review strategy, showed lower returns than those that did not. Other strategy and market variables were not related to stock market returns over this period, and were also generally not related to price-earnings ratios. This analysis supports the view that competitive HMO markets best constrain profits to investor-owned firms.

Original languageEnglish (US)
Pages (from-to)7-15
Number of pages9
JournalJournal of Health Care Finance
Volume28
Issue number1
StatePublished - Oct 23 2001

Keywords

  • Competition
  • Health maintenance organizations
  • Insurance
  • Profitability
  • Stock market

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    Pauly, M. V., Hillman, A. L., Furukawa, M. F., & McCullough, J. S. (2001). HMO behavior and stock market valuation: What does Wall Street reward and punish? Journal of Health Care Finance, 28(1), 7-15.