Market concentration in secondary health services under a purchaser-provider split: the New Zealand experience

The separation of purchaser and provider in government-funded health systems enables competition to develop between providers. Competition is seen as a means to drive technical efficiencies by providers. While it is difficult to assess comprehensively the level of competition in a market taking into account contestability and substitutability effects, it is possible to measure the degree of market concentration. This paper employs the Hirschman-Herfindahl index to provide measures of market concentration in selected secondary health care markets in New Zealand immediately prior to (1992) and following (1994) implementation of a purchaser-provider split. The results show that, generally, the selected markets are highly concentrated and that there has been little change in the degree of concentration over the 2 year period under investigation. The paper also discusses some of the methodological problems associated with the measurement of market concentration and acknowledges the limitations of such measures as indicators of competition.