The Effects of Competition and Multi-Hospital Systems on Hospital Prices
- Presenter:
Mon June 5, 2006 9:30-10:45 Room Alumni Lounge
Hospital prices in the US are rising again following years of little growth in which managed care plans had been able to leverage competition among hospitals to negotiate lower prices. Two explanations for the apparent shift in bargaining power from managed care plans to providers are that managed care may be weakened from consumers demanding broader networks, or that providers may be strengthened by the formation of larger scale multi-hospital systems.
Our study investigates how competition and the formation of hospital systems has affected the balance of power in hospital-health plan bargaining as reflected by hospital pricing behavior over time. We analyze trends in adjusted per diem hospital prices in California during a period of significant price growth (1995 through 2003) to assess whether the price constraining effects of hospital competition have weakened or if the ability of hospitals that are part of systems to charge higher prices explains the increase in hospital prices in that period. We find that competition in local markets remains an important factor in controlling hospital prices. However, the formation of hospital systems, both nonprofit and for-profit, has allowed member hospitals to charge higher prices. System effects have gotten larger over time, and apply even in competitive markets. This shift could be a permanent source of hospital price inflation, both for hospitals that are part of systems as well as for non system hospitals that compete in the same local markets.
