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Has competition lowered hospital prices?
Jack Zwanziger1, Cathleen Mooney
1Health Policy and Administration, School of Public Health, University of Illinois at Chicago, 60612-4394, USA. jzwanzig@uic.edu
Insights
New York deregulated hospital prices in 1997, leading to lower payments in competitive markets. However, hospital mergers later increased prices, impacting the long-term success of deregulation.
Area of Science:
- Health Economics
- Healthcare Policy
- Market Competition
Background:
- New York State deregulated hospital prices on January 1, 1997.
- The policy aimed to leverage market competition for controlling hospital costs and enhancing efficiency.
- This study examines the impact of this deregulation on hospital payment dynamics.
Purpose of the Study:
- To analyze the relationship between hospital prices and market characteristics post-deregulation.
- To assess the effectiveness of market competition in controlling hospital payments.
- To investigate the influence of hospital mergers on price trends.
Main Methods:
- Utilized data from annual reports of all New York-based health maintenance organizations (HMOs).
- Included data on payments to and utilization of major hospitals within HMO networks.
- Employed statistical models to estimate price determinants based on hospital, plan, and market attributes.
Main Results:
- Hospitals in more competitive markets experienced lower payments after 1997.
- Hospital mergers led to price increases by reducing local market competitiveness.
- Deregulation initially succeeded in reducing hospital payments through price competition.
Conclusions:
- Hospital deregulation in New York demonstrated short-term success in lowering payments via competition.
- The long-term effectiveness of deregulation is uncertain due to ongoing structural changes like hospital mergers.
- Future research should monitor the evolving hospital industry landscape and its impact on healthcare costs.
Abstract:
On Jan. 1, 1997, New York ended its regulation of hospital prices with the intent of using competitive markets to control prices and increase efficiency. This paper uses data that come from annual reports filed by all health maintenance organizations (HMOs) operating in New York and include payments to and usage in the major hospitals in an HMO's network. We estimate the relationship between implied prices and hospital, plan, and market characteristics. The models show that after 1997, hospitals in more competitive markets paid less. Partially offsetting these price reductions were price increases associated with hospital mergers that reduced the competitiveness of the local market. Hospital deregulation was successful, at least in the short run, in using price competition to reduce hospital payments; it is unclear whether this success will be undermined by the structural changes taking place in the hospital industry.
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