This paper examines how the managerial labor market in nonprofit hospitals has adjusted to the financial pressures induced by HMO penetration. Using a panel of about 1,500 nonprofit hospitals over the period 1992–96, the authors find that top executive turnover increased following an increase in HMO penetration. Moreover, the increase in turnover was concentrated among the hospitals that had lower levels of economic profitability. While the link between top executive pay and for-profit performance measures was on average very weak, HMO penetration tightened that link: as HMO penetration increased, top executives were compensated more for improving the profitability of their hospitals. These results, while of limited economic magnitude, are qualitatively consistent with the view that HMO penetration has increased the weight assigned to for-profit performance in the management of not-for-profit hospitals
