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Designing Hospital Antitrust Policy to Promote Social Welfare

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  • Daniel Kessler
  • Mark McClellan
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    Abstract

    Applying principles of merger evaluation to the health care industry in general, and to hospital markets in particular, poses several unique challenges. Definition of relevant geographic markets and assessment of the consequences of changes in competition for patient and social welfare are complicated by asymmetric information and moral hazard due to health insurance. We suggest a new empirical approach to assessing the impact of hospital competition which addresses the shortcomings of existing methods. We then summarize our main results on the welfare consequences of competition. We conclude with an illustration of how our methods can be used to assess the welfare implications of specific hospital mergers, and with some implications of our findings for antitrust policy.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6897.

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    Date of creation: Jan 1999
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    Handle: RePEc:nbr:nberwo:6897

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    1. Daniel P. Kessler & Mark McClellan, 1996. "Do Doctors Practice Defensive Medicine?," NBER Working Papers 5466, National Bureau of Economic Research, Inc.
    2. Martin Gaynor & Deborah Haas-Wilson, 1998. "Change, Consolidation, and Competition in Health Care Markets," NBER Working Papers 6701, National Bureau of Economic Research, Inc.
    3. Scheffman, David T & Spiller, Pablo T, 1987. "Geographic Market Definition under the U.S. Department of Justice Merger Guidelines," Journal of Law and Economics, University of Chicago Press, vol. 30(1), pages 123-47, April.
    4. Kessler, Daniel & McClellan, Mark, 1996. "Do Doctors Practice Defensive Medicine?," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 353-90, May.
    5. David Dranove & Mark Shanley & Carol Simon, 1992. "Is Hospital Competition Wasteful?," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 247-262, Summer.
    6. Panzar, John C, 1979. "Equilibrium and Welfare in Unregulated Airline Markets," American Economic Review, American Economic Association, vol. 69(2), pages 92-95, May.
    7. Paul L. Joskow, 1980. "The Effects of Competition and Regulation on Hospital Bed Supply and the Reservation Quality of the Hospital," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 421-447, Autumn.
    8. Robinson, James C. & Luft, Harold S., 1985. "The impact of hospital market structure on patient volume, average length of stay, and the cost of care," Journal of Health Economics, Elsevier, vol. 4(4), pages 333-356, December.
    9. Held, Philip J. & Pauly, Mark V., 1983. "Competition and efficiency in the end stage renal disease program," Journal of Health Economics, Elsevier, vol. 2(2), pages 95-118, August.
    10. Jonathan Gruber, 1992. "The Effect of Price Shopping in Medical Markets: Hospital Responses to PPOs in California," NBER Working Papers 4190, National Bureau of Economic Research, Inc.
    11. David Dranove & Mark A. Satterthwaite, 1992. "Monopolistic Competition When Price and Quality are Imperfectly Observable," RAND Journal of Economics, The RAND Corporation, vol. 23(4), pages 518-534, Winter.
    12. Noether, Monica, 1988. "Competition among hospitals," Journal of Health Economics, Elsevier, vol. 7(3), pages 259-284, September.
    13. Joskow, Paul L., 1983. "Reimbursement policy, cost containment and non-price competition," Journal of Health Economics, Elsevier, vol. 2(2), pages 167-174, August.
    14. Dranove, David & White, William D, 1994. "Recent Theory and Evidence on Competition in Hospital Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 169-209, Spring.
    15. Zwanziger, Jack & Melnick, Glenn A., 1988. "The effects of hospital competition and the Medicare PPS program on hospital cost behavior in California," Journal of Health Economics, Elsevier, vol. 7(4), pages 301-320, December.
    16. Melnick, Glenn A. & Zwanziger, Jack & Bamezai, Anil & Pattison, Robert, 1992. "The effects of market structure and bargaining position on hospital prices," Journal of Health Economics, Elsevier, vol. 11(3), pages 217-233, October.
    17. Manheim, Larry M & Bazzoli, Gloria J & Sohn, Min-Woong, 1994. "Local Hospital Competition in Large Metropolitan Areas," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 143-67, Spring.
    18. Woolley, J. Michael, 1989. "The competitive effects of horizontal mergers in the hospital industry," Journal of Health Economics, Elsevier, vol. 8(3), pages 271-291, December.
    19. Richard Schmalensee, 1977. "Comparative Static Properties of Regulated Airline Oligopolies," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 565-576, Autumn.
    20. Lynk, William J, 1995. "Nonprofit Hospital Mergers and the Exercise of Market Power," Journal of Law and Economics, University of Chicago Press, vol. 38(2), pages 437-61, October.
    21. Dranove, David & Shanley, Mark & White, William D, 1993. "Price and Concentration in Hospital Markets: The Switch from Patient-Driven to Payer-Driven Competition," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 179-204, April.
    22. Mark A. Satterthwaite, 1979. "Consumer Information, Equilibrium Industry Price, and the Number of Sellers," Bell Journal of Economics, The RAND Corporation, vol. 10(2), pages 483-502, Autumn.
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    Cited by:
    1. Gautam Gowrisankaran & Robert Town, 2002. "Competition, Payer, and Hospital Quality," NBER Working Papers 9206, National Bureau of Economic Research, Inc.
    2. Daniel P. Kessler & Mark B. McClellan, 1999. "Is Hospital Competition Socially Wasteful?," NBER Working Papers 7266, National Bureau of Economic Research, Inc.

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