Competitive market forces and trends in US hospital spending, 2001-2009

Abstract

Objectives: To investigate components of the rapidly increasing trend in hospital spending in the 2000’s and their relationship to market struc- ture. Study Design: Aggregate time series and multivariate analysis are conducted to test whe- ther hospital spending growth is driven by price or quantity and how recent hospital spending growth is related to health plan and hospital market structure. Method: Hospitals are grouped into strong and weak competitive markets based on the relative concentration of hospital and health plan markets as well as managed care penetration. Results: Inflation adjusted hospital spending grew much faster than gross domestic product (GDP) throughout the 2000s. Regres- sion results show that rapid growth was ob- served across all hospital markets—even in those markets where price competitive market forces are the strongest and that rising hospital prices, and not utilization explain most of the increases in hospital spending. Conclusions: Hos- pital spending exceeded the consumer price in- dex (CPI) by a substantial margin in the 2000’s due in part to weakening competitive market forces, which had a dampening effect on spend- ing and especially prices. Unless competition is restored, the cost of health care for consumers, employers and public payers can be expected to increase.