The Changing Effects of Competition on Non-Profit and For-Profit Hospital Pricing Behavior

Emmett B. Keeler, RAND
Glenn Melnick, University of Southern California
Jack Zwanziger, University of Rochester

Abstract

Has the nature of hospital competition changed from a medical arms race in which hospitals compete for patients by offering their doctors high quality services to a price war for the patients of payors? This paper uses time-series cross-sectional methods on California hospital discharge data from 1986–1994 to show the association of hospital prices with measures of market concentration changed steadily over this period, with prices now higher in less competitive areas, even for non-profit hospitals. Regression results are used to simulate the price impact of hypothetical hospital mergers.