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Price competition and hospital cost growth in the United States (1989–1994)

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  • Anil Bamezai
  • Jack Zwanziger
  • Glenn A. Melnick
  • Joyce M. Mann

Abstract

In recent years, most health care markets in the United States (US) have experienced rapid penetration by health maintenance organizations (HMOs) and preferred provider organizations (PPOs). During this same period, the US has also experienced slowing health care costs. Using a national database, we demonstrate that HMOs and PPOs have significantly restrained cost growth among hospitals located in competitive hospital markets, but not so in the case of hospitals located in relatively concentrated markets. In relative terms, we estimate that HMOs have contained cost growth more effectively than PPOs. Copyright © 1999 John Wiley & Sons, Ltd.

Suggested Citation

  • Anil Bamezai & Jack Zwanziger & Glenn A. Melnick & Joyce M. Mann, 1999. "Price competition and hospital cost growth in the United States (1989–1994)," Health Economics, John Wiley & Sons, Ltd., vol. 8(3), pages 233-243, May.
    • Handle: RePEc:wly:hlthec:v:8:y:1999:i:3:p:233-243
    DOI: 10.1002/(SICI)1099-1050(199905)8:3<233::AID-HEC406>3.0.CO;2-X
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    References listed on IDEAS

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    1. Wholey, Douglas & Feldman, Roger & Christianson, Jon B., 1995. "The effect of market structure on HMO premiums," Journal of Health Economics, Elsevier, vol. 14(1), pages 81-105, May.
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    4. Zwanziger, Jack & Melnick, Glenn A. & Mann, Joyce M., 1990. "Measures of hospital market structure: a review of the alternatives and a proposed approach," Socio-Economic Planning Sciences, Elsevier, vol. 24(2), pages 81-95.
    5. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-1381, September.
    6. 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.
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    Cited by:

    1. Jerome Dugan, 2015. "Trends in Managed Care Cost Containment: An Analysis of the Managed Care Backlash," Health Economics, John Wiley & Sons, Ltd., vol. 24(12), pages 1604-1618, December.
    2. Francesco Longo & Luigi Siciliani & Hugh Gravelle & Rita Santos, 2017. "Do hospitals respond to rivals’ quality and efficiency? a spatial econometrics approach," Working Papers 144cherp, Centre for Health Economics, University of York.
    3. Francesco Longo & Luigi Siciliani & Giuseppe Moscelli & Hugh Gravelle, 2019. "Does hospital competition improve efficiency? The effect of the patient choice reform in England," Health Economics, John Wiley & Sons, Ltd., vol. 28(5), pages 618-640, May.
    4. Gary Ferrier & Hervé Leleu & James Moises & Vivian Valdmanis, 2013. "The Focus Efficiency of U.S. Hospitals," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 41(3), pages 241-263, September.
    5. Francesco Longo & Luigi Siciliani & Andrew Street, 2019. "Are cost differences between specialist and general hospitals compensated by the prospective payment system?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 20(1), pages 7-26, February.
    6. Shen Yu-Chu & Melnick Glenn, 2006. "Is Managed Care Still an Effective Cost Containment Device?," Forum for Health Economics & Policy, De Gruyter, vol. 9(1), pages 1-24, December.
    7. H. Jiang & Bernard Friedman & Shenyi Jiang, 2013. "Hospital cost and quality performance in relation to market forces: an examination of U.S. community hospitals in the “post-managed care era”," International Journal of Health Economics and Management, Springer, vol. 13(1), pages 53-71, March.
    8. Wu, Vivian Y., 2009. "Managed care's price bargaining with hospitals," Journal of Health Economics, Elsevier, vol. 28(2), pages 350-360, March.
    9. Gary D. Ferrier & Hervé Leleu & James Moises & Vivian Valdmanis, 2009. "The Size and Service Offering Efficiencies of U.S. Hospitals," Working Papers 2009-ECO-09, IESEG School of Management.
    10. Heijink, Richard & Mosca, Ilaria & Westert, Gert, 2013. "Effects of regulated competition on key outcomes of care: Cataract surgeries in the Netherlands," Health Policy, Elsevier, vol. 113(1), pages 142-150.
    11. Francesco Longo & Luigi Siciliani & Hugh Gravelle & Rita Santos, 2017. "Do hospitals respond to rivals' quality and efficiency? A spatial panel econometric analysis," Health Economics, John Wiley & Sons, Ltd., vol. 26(S2), pages 38-62, September.
    12. Michael A. Morrisey & Alice M. Rivlin & Richard P. Nathan & Mark A. Hall, 2017. "Five‐State Study of ACA Marketplace Competition: A Summary Report," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 20(2), pages 153-172, September.
    13. Cohen, Jeffrey P. & Morrison Paul, Catherine, 2008. "Agglomeration and Cost Economies for Washington State Hospital Services," Regional Science and Urban Economics, Elsevier, vol. 38(6), pages 553-564, November.
    14. Ed Westerhout & Kees Folmer, 2013. "Why it may hurt to be insured: the effects of capping coinsurance payments," CPB Discussion Paper 239.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    15. Stadhouders, Niek & Kruse, Florien & Tanke, Marit & Koolman, Xander & Jeurissen, Patrick, 2019. "Effective healthcare cost-containment policies: A systematic review," Health Policy, Elsevier, vol. 123(1), pages 71-79.

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