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OBJECTIVE: HMOs have been shown to have an effect on the care provided directly to their enrollees. They may also influence the care provided to individuals in fee-for-service plans through a spill-over effect. The objective of this study was to investigate the associations among HMO market penetration, HMO and hospital competition, and the quality of care received by Medicare fee-for-service patients measured by risk-adjusted hospital mortality rates. DATA SOURCES: The 1990 data for 1,927 hospitals in 134 metropolitan statistical areas (with five or more hospitals) included Medicare fee-for-service risk-adjusted mortality rates from the Medicare Hospital Information Reports, hospital characteristics from the American Hospital Association annual survey, and HMO market penetration and competition calculated from InterStudy and Group Health Association of America data. STUDY DESIGN: Statistical regression techniques were used to identify the associations between HMO market penetration, competition, and risk-adjusted mortality, controlling for other hospital characteristics and region. PRINCIPAL FINDINGS: Higher HMO market penetration and to a lesser degree increased HMO competition were associated with better mortality outcomes for fee-for-service Medicare enrollees. Competition between hospitals did not exhibit a significant association. CONCLUSIONS: HMOs may have a spill-over effect on quality of care received by individuals enrolled in fee-for-service plans. These findings may be explained by a positive effect on local practice styles or a preferential selection by HMOs for areas with better hospital care.