In explaining why we spend so much money on healthcare in the U.S., Uwe Reinhardt famously said, “It’s the prices, stupid.” The spirit of his comment is that, while people will try to cite lots of reasons for high healthcare spending (such as physician salaries, profit incentives, poorer health of U.S. population relative to other countries, overuse of healthcare, fraud, etc.), these things really aren’t big factors relative to price differences. Essentially, if we want to really address healthcare spending, we need to place downward pressure on prices. With that in mind, Module 3 covers pricing and competition in healthcare.
The observation that prices in healthcare care are high is not new. It’s been a problem for decades. Some good surveys of this problem and suggestions to improve competitiveness in healthcare include: Dranove and Satterthwaite (2000), M. Gaynor and Vogt (2000), Martin Gaynor and Vogt (2003), M. Gaynor and Town (2012a), M. Gaynor and Town (2012b), M. Gaynor, Ho, and Town (2015), M. Gaynor, Mostashari, and Ginsburg (2017), Handel and Ho (2021). Our slides for today reflect a lot of the general insights from these types of surveys.
One important background point in the study of competition is the role of market definition and the different measures of market power. Everson, Hollingsworth, and Adler-Milstein (2019) and Dranove and Ody (2016) provide good reviews of these points, respectively. We’ll discuss these issues as part of our introduction to this module.
References
Dranove, David, and Christopher Ody. 2016. “Evolving Measures of Provider Market Power.” American Journal of Health Economics 2 (2): 145–60.
Dranove, David, and Mark A Satterthwaite. 2000. “The Industrial Organization of Health Care Markets.” Handbook of Health Economics 1: 1093–1139.
Everson, Jordan, John M Hollingsworth, and Julia Adler-Milstein. 2019. “Comparing Methods of Grouping Hospitals.” Health Services Research 54 (5): 1090–98.
Gaynor, Martin, and William B Vogt. 2003. “Competition Among Hospitals.” RAND Journal of Economics, 764–85.
Gaynor, M, K Ho, and R Town. 2015. “The Industrial Organization of Health Care Markets.” Journal of Economic Literature 47 (2): 235–84.
Gaynor, M, F Mostashari, and P Ginsburg. 2017. “Making Health Care Markets Work: Competition Policy for Health Care.” Policy {Report}. Brookings Institute.
Gaynor, M, and R Town. 2012a. “Competition in Health Care Markets.” In Handbook of Health Economics, edited by M. Pauly, T. McGuire, and P. Pita Barros. Vol. 2. Amsterdam: Elsevier.
———. 2012b. “The Impact of Hospital Consolidation - Update.” Policy {Brief}. Robert Wood Johnson Foundation.
Gaynor, M, and W Vogt. 2000. “Antitrust and Competition in Health Care Markets.” In Handbook of Health Economics, edited by A. Culyer and J. Newhouse. Vol. 1B. Amsterdam: Elsevier.
Handel, Ben, and Kate Ho. 2021.
“The Industrial Organization of Health Care Markets.” In
Handbook of Industrial Organization, edited by Kate Ho, Ali Hortaçsu, and Alessandro Lizzeri, 5:521–614. Handbook of
Industrial Organization,
Volume 5. Elsevier.
https://doi.org/10.1016/bs.hesind.2021.11.016.