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Competition and Health-Care Spending: Theory and Application to Certificate of Need Laws

Author

Listed:
  • James Bailey
  • Tom Hamami

Abstract

Hospitals and other health-care providers in 34 states must obtain a Certificate of Need (CON) from a state board before opening or expanding, leading to reduced competition. We develop a theoretical model of how market concentration affects health-care spending. Our theoretical model shows that increases in concentration, such as those brought about by CON, can either increase or decrease spending. Our model predicts that CON is more likely to increase spending in markets in which costs are low and patients are sicker. We test our model using spending data from the Household Component of the Medical Expenditure Panel Survey (MEPS).

Suggested Citation

  • James Bailey & Tom Hamami, 2019. "Competition and Health-Care Spending: Theory and Application to Certificate of Need Laws," Working Papers 19-38, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:19-38
    DOI: https://doi.org/10.21799/frbp.wp.2019.38
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    Cited by:

    1. Shishir Shakya & Christine Bretschneider‐Fries, 2025. "The effect of substance use Certificate‐of‐Need laws on access to substance use disorder treatment facilities," Southern Economic Journal, John Wiley & Sons, vol. 92(1), pages 87-110, July.
    2. Kihwan Bae & James Bailey, 2025. "Certificate of Need and the labor market," Southern Economic Journal, John Wiley & Sons, vol. 92(1), pages 133-151, July.
    3. Matthew D. Mitchell, 2025. "Certificate‐of‐Need laws in healthcare: A comprehensive review of the literature," Southern Economic Journal, John Wiley & Sons, vol. 92(1), pages 6-43, July.

    More about this item

    Keywords

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    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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