• Hospital prices and market concentration

    In the American Journal of Managed Care, James Robinson offers yet another look at how hospital market power relates to prices. Specifically, he examined, among other things, prices paid in 2008 by commercial insurers to 61 hospitals across 27 markets in eight states for six major cardiac and orthopedic surgery procedures. Consistent with theory and a growing body of evidence from other work (see the FAQ), he found that hospital prices and margins for comparable patients were substantially higher in concentrated markets (HHI above median) than competitive ones (HHI below median). The following chart illustrates some of his results.

    I must point out that this study was one of association not causation because the methods did not account for factors that might be correlated with both prices and market concentration such as unobserved measures of hospital quality. Additionally, insurer market concentration was not included in the analysis.

    • I am sure some one will come up with a good explanation, but to a layperson like me, somehow this phenomenon does not seem hard to understand or unusual. Stores in downtown of any big city are always more expensive. Even for the same thing, like BigMac, McDonald’s in downtown where similar fast food stores are concentrated usually charge more then the McDonald’s in rural area miles away.
      Sorry I guess I didn’t get the real picture behind the hospital prices in different market concentration.

    • Jane, market concentration has nothing to do with population density. It’s about market dominance and pricing power.

    • Basically, competition is good.