Market power of rural hospitals

In a comment yesterday, steve wrote,

Has anyone looked at the issue of market power in the context of rural vs urban providers? Most of the cases I have seen cited seem to identify large urban facilities, often university affiliated, as market powers. I would think that isolated, rural hospitals would have the same negotiating power, yet my experience would indicate that it seldom works that way.

It just so happens that today I was reading “Can Hospitals And Physicians Shift The Effects Of Cuts In Medicare Reimbursement To Private Payers?” by Paul Ginsberg in which he wrote,

The potential for cost shifting is also likely to vary geographically. Hospitals probably have more market power in smaller communities because concentration tends to be higher. Providers in small communities also might face more effective pressures to keep rates as low as possible. Both combined suggest that cost shifting has the potential to be more extensive. Indeed, many in contact with the insurance industry have noted sharp increases in rural hospital payment rates to private insurers in response to Medicare payment rate reductions resulting from the 1997 BBA. Rural hospitals, which tend to be natural monopolies, could have held rates way below their potential, so that when Medicare payment rates fell in relation to their costs, they could then raise rates to private insurers.

By the way, Ginsberg’s paper does a very nice job of laying out the most basic variants of cost shifting theory. There are more nuanced and complex theories out there that he doesn’t describe (not a critique, just a fact).

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