Hospitals and antitrust: defining markets, setting standards

The Comparison Between Different Hospital Market Definition Approaches: An Empirical Analysis of 11 Representative Diseases in Sichuan Province, China

Objective: This study aims to provide empirical evidence for the controversy about whether the inference is consistent if alternative hospital market definition methods are employed, and for which definition method is the best alternative to the predicted patient flow approach.

Data sources: Collecting data from the discharge data of inpatients and hospital administrative data of Sichuan province in China in the fourth quarter of 2018.

Study Design: We employed Herfindahl–Hirschman Index (HHI) as the proxy of market competition used as an example to measure the hospital market structure. Correlation coefficients of HHIs based on different definition methods were assessed. The corresponding coefficient of each HHI estimated in identical regression models was then compared. In addition, since the predicted patient flow method has been argued by the literature of its advantages compared with the previous approaches, we took the predicted patient flow as a reference to compare with the other approaches.

Data Extraction Methods: We selected the common diseases with a significant burden, and 11 diseases were included (902,767 hospitalizations).

Principal Findings: The correlation coefficients of HHIs based on different market definition methods are all significantly greater than 0, and the coefficients of HHIs are different in identical regression models. Taking the predicted patient flow approach as a reference, we found that the correlation coefficients between HHIs based on fixed radius and predicted patient flow approach is larger than others, and their parameter estimates are all consistent.

Conclusion: Although the HHIs based on different definition methods are significantly and positively correlated, the inferences about the effectiveness of market structure would be inconsistent when alternative market definition methods are employed. The fixed radius would be the best alternative when researchers want to use the predicted patient flow method to define the hospital market but are hindered by the data limitations and computational complexity.

Price effects of a hospital merger: Heterogeneity across health insurers, hospital products, and hospital locations

In most studies on hospital merger effects, the unit of observation is the merged hospital, whereas the observed price is the weighted average across hospital products and across payers. However, little is known about whether price effects vary between hospital locations, products, and payers. We expand existing bargaining models to allow for heterogeneous price effects and use a difference-in-differences model in which price changes at the merging hospitals are compared with price changes at comparison hospitals. We find evidence of heterogeneous price effects across health insurers, hospital products and hospital locations. These findings have implications for ex ante merger scrutiny.

Coopetition in health care: A multi-level analysis of its individual and organizational determinants

Cooperative inter-organizational relations are salient to healthcare delivery. However, they do not match with the pro-competitive healthcare reforms implemented in several countries. Healthcare organizations thus need to balance competition and cooperation in a situation of 'coopetition'. In this paper we study the individual and organizational determinants of coopetition versus those of cooperation in the price-competitive specialized care sector of the Netherlands. We use shared medical specialists as a proxy of collaboration between healthcare organizations. Based on a sample of 15,431 medical specialists and 371 specialized care organizations from March 2016, one logistic multi-level model is used to predict medical specialists' likelihood to be shared and another to predict their likelihood to be shared to a competitor. We find that different organizations share different specialists to competitors and non-competitors. Cooperation and coopetition are hence distinct organizational strategies in health care. Cooperation manifests through spin-off formation. Coopetition occurs most among organizations in the price-competitive market segment but in alternative geographical markets. Hence, coopetition in health care does not appear to be particularly anti-competitive. However, healthcare organizations seem reluctant to share their most specialized human resources, limiting the knowledge-sharing effects of this type of relation. Therefore, it remains unclear whether coopetition in health care is beneficial to patients.

Has Price Competition Changed Hospital Revenues and Expenses in New York?

This study analyzes the factors that influenced hospital expenses and revenues prior to and following the enactment of the New York State Health Care Reform Act of 1996 (HCRA)—the period from 1994–1999. HCRA was expected to encourage price competition which in turn was anticipated to lower hospital revenues and expenses. We measured the differential effects on hospital revenues and expenses in markets with varying degrees of competition. We also measured the relationship between hospital revenues and expenses and the increased concentration resulting from the formation of local hospital systems. We found that revenues and expenses both grew more slowly for hospitals located in more competitive markets; hospital systems that increased concentration tended to have higher revenues. In the short run at least, price competition induced by HCRA did constrain both hospital expense and revenue growth, although the increase in hospital mergers countered this trend.

Defining hospital markets - an application to the German hospital sector

The correct definition of the product market and of the geographic market is a prerequisite for assessing market structures in antitrust cases. For hospital markets, both dimensions are controversially discussed in the literature. Using data for the German hospital market we aim at elaborating the need for differentiating the product market and at investigating the effects of different thresholds for the delineation of the geographic market based on patient flows. Thereby we contribute to the scarce empirical evidence on the structure of the German hospital market. We find that the German hospital sector is highly concentrated, confirming the results of a singular prior study. Furthermore, using a very general product market definition such as "acute in-patient care" averages out severe discrepancies that become visible when concentration is considered on the level of individual diagnoses. In contrast, varying thresholds for the definition of the geographic market has only impact on the level of concentration, while the correlation remains high. Our results underline the need for more empirical research concerning the definition of the product market for hospital services.

Negotiating markets for health: an exploration of physicians' engagement in dual practice in three African capital cities

Scarce evidence exists on the features, determinants and implications of physicians’ dual practice, especially in resource-poor settings. This study considered dual practice patterns in three African cities and the respective markets for physician services, with the objective of understanding the influence of local determinants on the practice. Forty-eight semi-structured qualitative interviews were conducted in the three cities to understand features of the practice and the respective markets. A survey was carried out in a sample of 331 physicians to explore their characteristics and decisions to work in public and private sectors. Descriptive analysis and inferential statistics were employed to explore differences in physicians’ engagement in dual practice across the three locations. Different forms of dual practice were found to exist in the three cities, with public physicians engaging in private practice outside but also inside public facilities, in regulated as well as unregulated ways. Thirty-four per cent of the respondents indicated that they worked in public practice only, and 11% that they engaged exclusively in private practice. The remaining 55% indicated that they engaged in some form of dual practice, 31% ‘outside’ public facilities, 8% ‘inside’ and 16% both ‘outside’ and ‘inside’. Local health system governance and the structure of the markets for physician services were linked to the forms of dual practice found in each location, and to their prevalence. Our analysis suggests that physicians’ decisions to engage in dual practice are influenced by supply and demand factors, but also by how clearly separated public and private markets are. Where it is possible to provide little-regulated services within public infrastructure, less incentive seems to exist to engage in the formal private sector, with equity and efficiency implications for service provision. The study shows the value of analysing health markets to understand physicians’ engagement in professional activities, and contributes to an evidence base for its regulation.

Consolidation and concentration in the German hospital market: the two sides of the coin

In many countries, policy makers try to increase quality and efficiency in the hospital sector by fostering competition. The German hospital market is a good example of this approach and the challenges that come with it. We focus on market concentration which is both a result of and a potential threat to more competition. This study gives a detailed account of health reform in the German hospital sector and illustrates international experience with regard to market concentration. For the first time, concentration measures are consistently calculated at hospital system level. To make the results exploitable for comparative studies, this approach is described in detail. Patient flows are analyzed using data from the German hospital census, which is augmented with external data such as an indicator for the structures of urban and rural development. Our findings indicate that just some years after hospital competition was intensified, more than one third of German hospitals are located in strongly concentrated markets. Rural areas are especially prone to this development. If system membership is not accounted for, concentration is considerably underestimated. Policy makers are strongly advised to take precautions against excessive market concentration before promoting competition, as once consolidated, structures are difficult to unbundle.

Medicine prices in urban Mozambique: a public health and economic study of pharmaceutical markets and price determinants in low-income settings

It has been suggested that medicines are unaffordable in low-income countries and that world manufacturing and trade policies are responsible for high prices. This research investigates medicine prices in urban Mozambique with the objective of understanding how prices are formed and with what public health implications. The study adopts an economic framework and uses a combination of quantitative and qualitative methods to analyse local pharmaceutical prices and markets. The research findings suggest that: (a) local mark-ups are responsible for up to two-thirds of drugs' final prices in private pharmacies; (b) statutory profit and cost ceilings are applied unevenly, due to lack of government control and collusion among suppliers; and (c) the local market appears to respond effectively to the urban population's diverse needs through its low-cost and high-cost segments, although uncertainty around the quality of generics may be inducing consumers to purchase less affordable drugs. We conclude that local markets play a larger than expected role in the determination of prices in Mozambique, and that more research is needed to address the complex issue of affordability of medicines in low-income countries. We also argue that price controls may not be the most effective way to influence access to medicines in low-income countries, and managing demand and supply towards cheaper effective drugs appears a more suitable policy option.

Concentration and drug prices in the retail market for malaria treatment in rural Tanzania

The impact of market concentration has been little studied in markets for ambulatory care in the developing world, where the retail sector often accounts for a high proportion of treatments. This study begins to address this gap through an analysis of the consumer market for malaria treatment in rural areas of three districts in Tanzania. We developed methods for investigating market definition, sales volumes and concentration, and used these to explore the relationship between antimalarial retail prices and competition.The market was strongly geographically segmented and highly concentrated in terms of antimalarial sales. Antimalarial prices were positively associated with market concentration. High antimalarial prices were likely to be an important factor in the low proportion of care-seekers obtaining appropriate treatment.Retail sector distribution of subsidised antimalarials has been proposed to increase the coverage of effective treatment, but this analysis indicates that local market power may prevent such subsidies from being passed on to rural customers. Policymakers should consider the potential to maintain lower retail prices by decreasing concentration among antimalarial providers and recommending retail price levels.

Defining hospital markets for antitrust enforcement: new approaches and their applicability to The Netherlands

Effective antitrust enforcement is of crucial importance for countries with a market-based health care system in which hospitals are expected to compete. Assessing hospital market power--a central issue to competition policy--is, however, complicated because the presence of third party payers and the general unobservability of prices make it difficult to apply the standard methods of market definition. Alternative, less formal methods historically employed in the hospital industry have proven inaccurate; these methods were even called inapplicable in a recent US court decision. In this paper, we discuss the strengths and weaknesses of several new approaches to defining hospital markets that are suggested in the recent economic literature. In particular, we discuss the applicability of the time-elasticity approach, competitor-share approach, and option-demand approach to the recently partly deregulated Dutch hospital market. We conclude that the appropriate approach depends crucially on how health insurers contract with hospitals and how patients select their hospital.

Do competition and managed care improve quality?

In recent years, the US health care industry has experienced a rapid growth of managed care, formation of networks, and an integration of hospitals. This paper provides new insights about the quality consequences of this dynamic in US hospital markets. I empirically investigate the impact of managed care and hospital competition on quality using in-hospital complications as quality measures. I use random and fixed effects, and instrumental variable fixed effect models using hospital panel data from up to 16 states in the 1992-1997 period. The paper has two important findings: First, higher managed care penetration increases the quality, when inappropriate utilization, wound infections and adverse/iatrogenic complications are used as quality indicators. For other complication categories, coefficient estimates are statistically insignificant. These findings do not support the straightforward view that increases in managed care penetration are associated with decreases in quality. Second, both higher hospital market share and market concentration are associated with lower quality of care. Hospital mergers have undesirable quality consequences. Appropriate antitrust policies towards mergers should consider not only price and cost but also quality impacts.

A relational approach to measuring competition among hospitals

OBJECTIVE

To present a new, relational approach to measuring competition in hospital markers and to compare this relational approach with alternative methods of measuring competition.

DATA SOURCES

The California Office of Statewide Health Planning and Development patient discharge abstracts and financial disclosure files for 1991.

STUDY DESIGN

Patient discharge abstracts for an entire year were used to derive patient flows, which were combined to calculate the extent of overlap in patient pools for each pair of hospitals. This produces a cross-sectional measure of market competition among hospitals.

PRINCIPAL FINDINGS

The relational approach produces measures of competition between each and every pair of hospitals in the study sample, allowing us to examine a much more "local" as well as dyadic effect of competition. Preliminary analyses show the following: (1) Hospital markets are smaller than thought. (2) For-profit hospitals received considerably more competition from their neighbors than either nonprofit or government hospitals. (3) The size of a hospital does not matter in the amount of competition received, but the larger hospitals generated significantly more competition than smaller ones. Comparisons of this method to the other methods show considerable differences in identifying competitors, indicating that these methods are not as comparable as previously thought.

CONCLUSION

The relational approach measures competition in a more detailed way and allows researchers to conduct more fine-grained analyses of market competition. This approach allows one to model market structure in a manner that goes far beyond the traditional categories of monopoly oligopoly, and perfect competition. It also opens up an entirely new range of analytic possibilities in examining the effect of competition on hospital perfomance, price of medical care, changes in the market, technology acquisition, and many other phenomena in the health care field.

Markets for hospital services in Zambia

Hospital reforms involving the introduction of measures to increase competition in hospital markets are being implemented in a range of low and middle-income countries. However, little is understood about the operation of hospital markets outside the USA and the UK. This paper assesses the degree of competition for hospital services in two hospital markets in Zambia (Copperbelt and Midlands), and the implications for prices, quality and efficiency. We found substantial differences among different hospital types in prices, costs and quality, suggesting that the hospital service market is a segmented market. The two markets differ significantly in their degree of competition, with the high cost inpatient services market in Copperbelt relatively more competitive than that in the Midlands market. The implications of these differences are discussed in terms of the potential for competition to improve hospital performance, the impact of market structure on equity of access, and how the government should address the problem of the mine hospitals.

Geographic variation in expenditures for Workers' Compensation hospitalized claims

OBJECTIVE

Past literature finds considerable variation in the cost of physician care and in the utilization of medical procedures. Variation in the cost of hospitalized care has received little attention. We examine injury costs of hospitalized claims across states.

DESIGN

Multivariate regression analysis is used to isolate state variations, while controlling for personal and injury characteristics, and state characteristics.

SETTING

Injuries to workers filing Workers' Compensation lost workday claims.

PARTICIPANTS

About 35,000 randomly sampled Workers' Compensation claims from 17 states filed between 1979 and 1988.

MAIN OUTCOME MEASURE

Medical payments per episode of three injury groups: upper and lower extremity fractures and dislocations, other upper extremity injuries, and back strains and sprains.

RESULTS

Statistical analyses reveal considerable variation in expenditures for hospitalized injuries across states, even after controlling for case mix and state characteristics. A substantial portion of the variation is explained by state rate regulations; regulated states have lower costs.

CONCLUSIONS

The large variation in costs suggests a potential to affect the costs of hospitalized care. Efforts should be directed at those areas that have higher costs without sufficient input price, quality, or case mix justification.

Rural hospital mergers, antitrust policy, and the Ukiah case

This article examines the antitrust issues in rural hospital mergers by focusing on an important antitrust case involving the merger of two small hospitals in Ukiah, California. A key issue in this matter was whether the geographic market served by the merger included a nearby larger city. The economic efficiency of small rural hospitals and the competitive implications of their mergers are examined in the context of the Ukiah case. Economies of scale are shown to be important for small rural hospitals and should mitigate any increase in price. The efficiencies defense is shown to be difficult to make even when economies of scale make the likelihood of efficiencies high. The financial difficulties of many rural hospitals, especially in areas where too many exist, mean that mergers such as this one in Ukiah often are an efficient way to keep these hospitals financially sound and accessible. The Ukiah case suggests the desirability of the merger guidelines that permit most mergers of small rural hospitals.

The influence of governmental policy on community health partnerships and community care networks: an analysis of three cases

This is a comparative analysis of hospitals' efforts in three communities to pursue collaborative ventures to advance community health. The events occurred over a two-year period characterized by increasing market competition and national debate about comprehensive health care financing reform. The study objectives are to better understand factors that contributed to the initiation of the collaborative efforts, and factors that sustained, hindered, or thwarted these efforts. The study explores how the collaborative ventures in these three communities fared in the face of multiple and conflicting policies and the simultaneous creation of larger, competing health systems. A number of concluding generalizations address the impact of interorganizational dynamics and public policy initiatives on community health partnerships.

Managed care merged with the German model

The cutbacks in Medicare and Medicaid reimbursement, and the Republican takeover of Capitol Hill and the state legislatures as a result of recent elections, suggest that the payer-driven forces of managed care, capitated payment, and the regional networks (alliances) will serve as centerpieces to improve the organization, financing, and delivery of America's health services. These "voluntary" alliances that are now being forged as an amalgam of health providers and insurance underwriters, often foreshadow the powerful, geographically linked regional health networks that are evolving into oligopolies throughout the United States. As the Department of Justice and the Federal Trade Commission are unable to appropriately analyze the efficacy of most prospective mergers, the American health field increasingly can expect monopolistic environments. In this process, the public eventually may demand the formation of state health services commissions. Within this framework, the German decentralized, multipayer, multitier approach, which historically is self-governing and allows for negotiating reimbursement rates between insurers and providers, offers a preferred option to the traditional American public utility model.

State health services commissions German style

After the health networks tied to HMOs are organized into oligopolies, and eventually fail to provide adequate access, social equity, and cost containment, public pressures will demand that state health services commissions be established to regulate market share, the scope of health services, reimbursement rates, and allowable profits. The German health system is multipayer, multitier, decentralized, self-governing, and allows providers and insurers to negotiate reimbursement rates without direct government involvement. Such a model would offer more competition among providers and less government regulation.

Federal antitrust merger enforcement standards: a good fit for the hospital industry?

We examine the implications of the 1992 Horizontal Merger Guidelines for the hospital industry and subsequent policy statements that were developed for health care providers. Application of antitrust policy to hospitals has raised several concerns, mainly because many communities have few hospitals and economic forces in the industry are accelerating interest in intramarket mergers and provider network development. We address several issues, including the standing of hospitals relative to the market concentration thresholds of the merger guidelines, market concentration compared among challenged and unchallenged mergers of the 1980s, findings of previous research about the relationship between market concentration and competition in hospital markets, and differences in characteristics other than market concentration that are relevant to the merger guidelines among challenged and unchallenged mergers. We found that (1) the specific standards articulated in the merger guidelines do not provide good predictability of when a hospital merger challenge would occur, and (2) comparisons of challenged and unchallenged mergers in similarly structured markets suggest that enforcement actions may deviate in practice from the enforcement principles of the merger guidelines. We consider several options for refining antitrust enforcement policy. Refinement of enforcement policies is important given the industry restructuring that is likely through health care reform.