Antecedents of Hospital Ownership Conversions, Mergers, and Closures (original) (raw)
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The RAND Journal of Economics, 2003
Our objective is to determine the effect of ownership type (for-profit, not-for-profit, government) on firm conduct in hospital markets. Secondary objectives include estimating hospital demand systems useful for market definition and merger simulation. To this end, we estimate a structural model of demand and pricing in the short term hospital industry in California, and then use the estimates to simulate the effect of a merger. Demand is modeled at the level of individual consumers using discrete choice techniques and micro data on individuals. Price in the demand equation is endogenous, and we use recently developed instrumental variables techniques to correct for this. We allow the behavior of for-profit and not-for-profit firms to differ, modeling these differences structurally following the relevant theory literature. We find that California hospitals in 1995 faced a downward-sloping demand for their products, with an average price elasticity of demand of -5.67.
Health Economics, 2006
We examine the evolving structure of the U.S. hospital industry since 1970, focusing on how ownership form influences entry and exit behavior. We develop theoretical predictions based on the model of Lakdawalla and Philipson, in which for-profit and not-for-profit hospitals differ regarding their objectives and costs of capital. The model predicts for-profits would be quicker to enter and exit than not-for-profits in response to changing market conditions. We test this hypothesis using data for all U.S. hospitals from 1984 through 2000. Examining annual and regional entry and exit rates, for-profit hospitals consistently have higher entry and exit rates than not-for-profits.
Competitive market forces and trends in US hospital spending
Objectives: To investigate components of the rapidly increasing trend in hospital spending in the 2000's and their relationship to market structure. Study Design: Aggregate time series and multivariate analysis are conducted to test whether hospital spending growth is driven by price or quantity and how recent hospital spending growth is related to health plan and hospital market structure. Method: Hospitals are grouped into strong and weak competitive markets based on the relative concentration of hospital and health plan markets as well as managed care penetration. Results: Inflation adjusted hospital spending grew much faster than gross domestic product (GDP) throughout the 2000s. Regression results show that rapid growth was observed across all hospital markets—even in those markets where price competitive market forces are the strongest and that rising hospital prices, and not utilization explain most of the increases in hospital spending. Conclusions: Hospital spending exceeded the consumer price index (CPI) by a substantial margin in the 2000's due in part to weakening competitive market forces, which had a dampening effect on spending and especially prices. Unless competition is restored, the cost of health care for consumers, employers and public payers can be expected to increase.
Specialty hospital market proliferation
Health Care Management Review, 2010
Background: Since the early 1990s, specialty hospitals have been continuously increasing in number. A moratorium was passed in 2003 that prohibited physicians' referrals of Medicare patients to newly established specialty hospitals if the physician has ownership stakes in the hospital. Although this moratorium expired in effect in 2007, many are still demanding that the government pass new policies to discourage the proliferation of specialty hospitals. Purpose: This study aimed at examining the regulatory and environmental forces that influence specialty hospitals founding rate. Specifically, we use the resource partitioning theory to investigate the relationship between general hospitals closure rates and the market entry of specialty hospitals. This study will help managers of general hospitals in their strategic thinking and planning. Methodology: We rely on secondary data resources, which include the American Hospital Association, Area Resource file, census, and Center for Medicare and Medicaid Services data, to perform a longitudinal analysis of the founding rate of specialty hospital in the 48 states. Specifically, we use the negative binomial generalized estimating equation approach available through Stata 9.0 to study the effect of general hospitals closure rate and environmental variables on the proliferation of specialty hospitals. Findings: Specialty hospitals founding rate seems to be significantly related to general hospitals closure rates. Moreover, results indicate that economic, supply, regulatory, and financial conditions determine the founding rate of specialty hospitals in different states. Practice Implications: The results from this study indicate that the closure of general hospitals creates market conditions that encourage the market entry of specialized health care delivery forms such as specialty hospitals. Managers of surviving general hospitals have to view the closure of other general hospitals not just as an opportunity to increase market share but also as a threat of competition from new forms of health care organizations.
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Journal of Health Economics, 2000
Debate continues on whether consolidation in health care markets enhances efficiency or instead facilitates market power, possibly damaging quality. We compare the quality of hospital care before and after mergers and acquisitions in California between 1992 and 1995. We analyze inpatient mortality for heart attack and stroke patients, 90-day readmission for heart attack patients, and discharge within 48 h for normal newborn babies. Recent mergers and acquisitions have not had a measurable impact on inpatient mortality, although the associated standard errors are large. Readmission rates and early discharge increased in some cases. The adverse consequences of increased market power on the quality of care require further substantiation. q
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Health care facilities include hospitals and nursing homes. Demand for beds and occupancy depends on income, prices and insurer restrictions. The supply of beds is limited by regulatory certificates of need. The implied equilibrium vacancy leads to a trade-off with rate increases. Rate increases establish an asset price for a hospital bed. If prices of health care rise faster than income and nonhealth prices, patients demand less bed availability and occupancy. Rising vacancy and rising prices occur, consistent with the empirical observations for U.S. health care facilities. For 1980-2001, the equilibrium vacancy rate for U.S. hospitals is between 27% and 36% depending on capacity adjustments, bed availability and price expectations. Equilibrium vacancy is near the actual rate after 2000, but that rate is 11 percentage points higher than in the early 1980s when the number of beds was nearly one-third higher. Usually rent regulation leads to excess demand. But in a general equilibrium model with income, relative prices, expectations, supply and capital markets, price regulation can coexist with excess supply.