In 1997, many Health Maintenance Organizations (HMOs) suffered a decline in the value of their stocks. One newspaper account stated, “Just when HMOs seemed to offer an answer to the intractable problem of soaring health- care costs, the bottom fell out. Some of the industry’s biggest names are racking up losses, grappling with unexpected rises in medical bills, . . . , and squirming under a backlash from consumers, doctors and politicians” [Anders and Winslow, 1997]. Why do you think that HMOs were un-able to keep their costs low? What is there about the structure of HMOs that would lead to consumer discontent?
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