A relational approach to measuring competition among hospitals

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

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

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.

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.

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.