The impact of hospital market structure on patient volume, average length of stay, and the cost of care

Abstract

TitleThe impact of hospital market structure on patient volume, average length of stay, and the cost of care A variety of recent proposals rely heavily on market forces as a means of controlling hospital cost inflation. Sceptics argue, however, that increased competition might iead to cost-increasing acquisitions of specialized clinical services and other forms of non-price colupetition as means of attracting physicians and patients. Using data from hospitals in 1972 we analyzed the impact of market structure on average hospital costs, measured in terms of both cost per patient and cost per patient day. Under the retrospective reimbursement system in place at the time, hospitals in more competitive environments exhibited significantly higher costs of production than did those in less competitive environments.

Factors Impacting Hospital Financial Performance in Taiwan Following Implementation of National Health Insurance

“…Most researchers have suggested that increased size and improved facilities are associated with declining average costs, thus leading to improved financial effectiveness, (Sloan et al, 1983;Becher & Sloan, 1985;Robinson & Luft, 1985;Feldstein, 1988;Hoerger, 1991;Williams et al, 1992;Cody et al, 1995;Narine et al, 1996). Other researchers have suggested that increased scale is associated with a decrease in hospital financial effectiveness (Gapenski, 1993).…”

Antitrust and Competition in Health Care Markets

“…A typical finding in this literature is that higher levels of concentration lead to lower levels of input use. So, for example, find that more highly concentrated California hospital markets have less sophisticated medical equipment; Robinson and Luft (1985) find that length of stay is declining in concentration; Joskow (1980) finds that more concentrated hospital markets hold a lower reserve capacity of beds.…”

“…Some have claimed that, due to insurance, hospitals do not (or did not) compete on price to attract patients, but rather compete solely on quality or facilities to attract patients (or doctors, who then bring patients with them). This has been called the "medical arms race" [Robinson and Luft (1985)]. 19 This has some plausibility for hospitals prior to the 1980s (although the empirical evidence is weak), since most hospitals were reimbursed on the basis of costs and patients were both heavily insured and unrestricted in their choice of health care provider.…”

“…These market definitions have included the Elzinga-Hogarty method discussed above. Another method is the "fixed-radius" technique (Robinson and Luft , 1985;Gruber, 1994) in which a hospital's market is defined to be an area 5 or 10 or 15 miles in radius around the hospital. Still another type is the "variable radius" technique Melnick et al, 1992;Gruber, 1994) in which a hospital's market is, in essence, a weighted average of fixed radius markets, where the weights come from observed or predicted market shares in zip codes.…”

“Too much medicine”: Insights and explanations from economic theory and research

“…" Robinson and Luft (1985) noted that -contrary to standard economic theory -hospitals in more competitive markets appeared to have higher costs than hospitals with greater monopoly power. They hypothesised that a possible explanation for this phenomenon involved inflationary increases in investment in technology and service intensity to retain market share and physician loyalty (Robinson & Luft 1985), representing a form of "quality competition" in which "quality" is overproduced through competitive strategy (Dranove, Shanley & Simon 1992). The extent to which empirical evidence supported this hypothesis was contested by Robinson, Dranove and their respective collaborators.…”