Kindling Hospital Competition to Control Costs

This paper takes a critical look at the widespread belief that, compared to public regulation, competitive markets are increasingly less reliable as ways to limit inappropriate growth in hospital spending in the United States. Setting aside the population in rural areas and small cities where competition is very unlikely, the data presented show that the fraction of the remaining U.S. population in larger cities exposed to competition is large, ranging from 58% to 89%. The paper then considers the remaining areas that could support competition but currently do not do so. The literature on how to foster competition in such currently less competitive markets is reviewed. A combination of expanded markets and incentives for aggressive ("maverick") and disruptive hospital pricing behavior is shown to hold the most promise for a market-based solution.