Competition and the Cost of Hospital Care, 1972 to 1982

James C. Robinson

170 citations0/0 files storedJAMA

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Healthcare Policy and Management Health Services Management and Policy Healthcare Quality and Management

Abstract

Using 1982 data from 5732 US hospitals, we found that costs were substantially higher in hospitals operating in more competitive local environments than in hospitals in less competitive environments. After controlling for wage rates, patient case mix, state regulatory programs, and hospital teaching role, average costs per admission were found to be 26% higher in hospitals in the most competitive markets (more than ten hospitals within a 24-km radius) than in hospitals with no competitors within a 24-km radius. Average costs per patient-day were 15% higher in the most competitive markets than in hospitals with no neighbors. These findings on the cost implications of nonprice competition among hospitals suggest that the new modes of hospital payment will have a greater disruptive impact on hospital behavior in areas with many, rather than few, hospitals. In anticipating the effects of new modes of payment on hospital behavior, policymakers should consider the nature of quality competition as well as price competition within local markets.

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References

1957The Theory of Monopolistic Competition 1934The Theory of Monopolistic Competition 1985The impact of hospital market structure on patient volume, average length of stay, and the cost of care 1980The Effects of Competition and Regulation on Hospital Bed Supply and the Reservation Quality of the Hospital 1980The Relation Between Surgical Volume and Mortality: An Exploration of Causal Factors and Alternative Models 1982Competition, Profit Incentives, and Technical Efficiency in the Provision of Nuclear Medicine Services

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