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This chapter presents the following content: Structure - Putting it all together, case study conclusion, dorfman-steiner model of advertising, what type of advertising will hospitals use? Hospital conduct, does ownership type affect conduct?...
The Hospital Market, Part Professor Vivian Ho Health Economics Fall 2007 Structure: Putting it all Together Is the hospital market competitive, or not? Case Study: UNITED STATES OF AMERICA, Plaintiff, vs MERCY HEALTH SERVICES and FINLEY TRI-STATES HEALTH GROUP, INC Defendants Filed October 17, 1995 Mercy and Finley: only acute care hospitals in Dubuque, Iowa propose to merge Justice Department sues for preliminary injunction Facts Dubuque population = 86,403 Mercy: 320 staffed beds, average daily census = 127 Finley: 124 staffed beds, average daily census = 63 competition - outside 70m radius, but within 100 m Madison, Wisconsin Waterloo Cedar Rapids Iowa City, Iowa Dubuque Freeport, Illinois Insurance coverage for Mercy/Finley patients 50% Medicare/Medicaid 25% Fee-for-service (traditional indemnity) 25% Managed care (HMOs, PPOs) Negotiated 15-30% hospital price discounts Justice Department case 1) Where Dubuque patients go for hospital care? 88% inside (Mercy or Finley) 12% outside 2) Where are Mercy/Finley patients from? 76% inside (Dubuque) 24% outside Dubuque the relevant geographic market, and merger constitutes a monopoly Ruling District court judge rejects Justice Department’s definition of geographic market as too narrow “The government continues to fail to look at the merger within the context of current market trends All evidence is that there is a great deal of competition for health care dollars…” “…if DRHS [merged entity] reacted in a noncompetitive manner, an HMO that could successfully induce Dubuque area residents to use alternative hospitals would be at a significant cost advantage.” “There is also evidence that managed care entities can successfully induce Dubuque residents to use other regional hospitals for their inpatient needs.” Merger of Mercy and Finley would not/could not result in higher prices Case Study Conclusion Even if only one hospital exists in a given geographic region, it may not be able to act as a monopolist Ability of large, managed care buyers to shift patients can keep the market competitive Markets with fewer hospitals may face higher prices But hospitals in more concentrated markets may be larger, and econ of scale may ¯ costs Look at price and quality effects of hospital mergers Data from Los Angeles in 1990-1993 suggests that hospital mergers would ↑ prices >5% (Town & Vistnes 2001) Hospitals that merged between 1989 and 1996 lowered their costs two years after consolidation relative to comparable hospitals that didn’t merge (Dranove & Lindrooth 2003) Even if hospitals lower costs, they may not pass price savings on to consumers Hospitals that merged in 1997-2001 raised their negotiated PPO prices relative to the median market price Other studies suggest that hospital consolidation does not improve the quality of care These results suggest that more competitive hospital markets favor consumers Does Ownership Type Affect Conduct? Empirical Evidence Prices higher for for-profit hospitals, but NFP & public hospitals enjoy tax advantages, municipal bond discounts Only small differences in costs by ownership type But public hospitals provide more uncompensated care Data from CA calls into question tax-exempt status of NFPs Has managed care changed conduct? Empirical Evidence HMO hospitalization rates 15-20% lower than those of fee-for-service insurance plans However, HMO growth has not led to decrease in total hospital costs per capita at market level Maybe further HMO penetration required Government still a dominant payer, and reimburses generously Maybe managed care doesn’t work Outcomes for patients covered by HMOs similar & sometimes better than those for fee-for-service patients Hospital Market Performance Hospital Expenditures in the United States, 1960-2007 Total Hospital Spending as a Average Annual Expenditures Percentage of Year Change from (billions of Gross Domestic Previous Period dollars) Product 1960 $ 9.3 _ 1.8% 1970 27.6 11.6% 2.7 1980 101.0 13.9 3.6 1990 251.6 9.6 4.3 2000 417.0 5.2 4.2 2007 696.5 7.6 5.0 How have price and quantity changed? Table 14-8 Hospital Price Inflation Trend in the United States 1975-2006 General Inflation Rate (urban consumers) Year 1975 1980 1984 1988 1990 1992 1996 9.1% 13.5 4.3 4.1 5.4 3.0 2.7 Hospital Room Inflation Rate (urban consumers) 17.1% 13.1 8.3 9.3 10.9 8.8 4.5 Inpatient Hospital Services 1998 1999 2000 2001 2002 2003 2004 2005 2006 1.6 2.2 3.4 2.8 1.6 2.3 2.7 3.4 3.2 2.7 3.8 5.5 6.3 8.4 6.8 5.7 5.7 7.0 Source: U.S Department of Labor, Bureau of Labor Statistics, CPI Detailed Report (various issues) Hospital inflation rate exceeds general rate for all but year Despite move to prospective reimbursement by Medicare in 1983, hospital inflation continued Possible explanations 1) generous insurance 2) fee-for-service medicine 3) lack of profit motive 4) quality competition What about Quantity? Community Hospital Inputs and Utilization Trends in the United States, 1975-2005 Year Hospital Staffing Ratio Occupancy Rate (%) Admission Rate (per 100 population) Average Length of Stay (days) Outpatient Visits (per 100 population) 1975 3.00 74.9 15.5 7.7 88.3 1980 3.35 75.6 15.9 7.6 89.0 1985 3.86 64.8 14.0 7.1 91.7 1990 4.21 66.8 12.5 7.2 120.6 1995 4.59 62.8 11.8 6.5 157.7 2000 4.61 63.8 11.7 5.8 185.2 2006 xxx 68.9 11.7 5.5 200.2 Average length of stay declined, and admissions and occupancy rates declined through the 1990’s But staffing, outpatient visits rose Source: American Hospital Association, Hospital Statistics Was growth in staffing, outpatient visits inappropriate? Ratings of inappropriate use of medical treatments among 1981 Medicare population, as defined by expert panel of MDs Procedure Inappropriate use(%) coronary angiography 17% carotid endarterectomy 32% upper GI tract endoscopy 17% Similar findings in 1979-1982 for coronary artery bypass graft patients More recent studies find less inappropriate use in New York However, practice variation studies show many surgical procedures performed less often relative to other areas in U.S Table 1410 Concentration of Health Expenditures by the U.S. Population, Selected Years Percent of U.S. Population Ranked by Expenditures Top 1% Top 2% Top 5% Top 10% Top 30% Top 50% Bottom 50% 1970 1977 1980 1987 1996 26% 35 50 66 88 96 4 27% 38 55 70 90 97 3 29% 39 55 70 90 96 4 28% 39 56 70 90 97 3 27% 38 55 69 90 97 3 Source: Marc L Berk and Alan C Monheit, “The Concentration of Health Expenditures: An Update,” Health Affairs 20 (Spring 2001), Exhibit Distribution of health expenditures has become more concentrated Most severely ill patients receiving highcost critical care in hospitals 1/7 of all health expenditures spent on those in last months of life Do we need to ration health care costs for the very ill? ... prices relative to the median market price Other studies suggest that hospital consolidation does not improve the quality of care These results suggest that more competitive hospital markets favor... similar & sometimes better than those for fee-for-service patients Hospital Market Performance Hospital Expenditures in the United States, 196 0-2 007 Total Hospital Spending as a Average Annual Expenditures...Structure: Putting it all Together Is the hospital market competitive, or not? Case Study: UNITED STATES OF AMERICA, Plaintiff, vs MERCY HEALTH SERVICES and FINLEY TRI-STATES HEALTH GROUP, INC Defendants