Increased competition among medical providers seems to have few downside medical risks and leads to lower costs and less utilization. American hospital markets are fairly small. The Dartmouth Atlas splits the country up into 306 hospital markets. There is cross-regional flow as insurance networks are not laid out on the same pattern as hospital networks but it is a pragmatic measure of small markets.
This matters as hospital regions can be very concentrated among only a few ownership groups. The national hospital concentration indexes are not that high but regional concentration can be very high. Concentrated hospital systems means they don’t have to be that good to collect economic rent as there are few reasonable alternatives.
Martin Gaynor, Rodrigo Moreno-Serra and Carol Propper examined the impact of market concentration in English hospitals. They found the following:
We find that the effect of competition is to save lives without raising costs. Patients discharged from hospitals located in markets where competition was more feasible were less likely to die, had shorter length of stay and were treated at the same cost.
My colleague at Duke-Margolis, Professor Barack Richman, published in the New England Journal of Medicine a business analysis of the Indian cardiac hospitals and notes the localization of the American hospital markets:
U.S. hospitals, in contrast, have oriented their business strategy toward obtaining market leverage and exerting monopoly power in setting prices. The U.S. health care market is characterized by payers and providers maneuvering to squeeze each other financially. The most recent wave of reforms — the spread of Accountable Care Organizations — has too often merely enshrined hospital monopolies in local markets. In addition, because this leverage is accumulated to extract higher prices from insurers, not patients, providers give little thought to what consumers actually can afford. A business strategy geared toward expanding and leveraging market power in an effort to raise prices is antithetical to one that focuses on providing value to consumers.
Chad Terhune at Kaiser Health News looked at an innovative private insurance program in California:
Retiree Leslie Robinson-Stone and her husband enjoyed a weeklong, all-expenses-paid trip to a luxury resort — all thanks to the county she worked for.
The couple also received more than a thousand dollars in spending money and a personal concierge, who attended to their every need. For Santa Barbara County, it was money well spent: Sending Robinson-Stone 250 miles away for knee replacement surgery near San Diego saved the government $30,000.
Expanding the relevant competition regions lowers prices. If there are Indian style cardiac hospitals within a four to six hour flight of most major American cities, sooner or later, non-time sensitive surgeries will be using those centers to at least leverage better pricing out of mainland hospitals. More likely, people will start to be told that they can pay no deductible and travel six hours or pay $7,000 deductibles to stay near the house for non-critical care needs. Increasing the size of the competition space should help break the localized monopolies that have driven up the cost per unit of healthcare delivered in the United States.