Competition and hospital prices

One of the issues that’s arisen during the presidential campaign relates to hospital prices. Specifically, some have argued that lack of competition among hospitals in a local area may result in higher prices for consumers and insurers. NC State University economist Mike Walden comments on research that addresses this topic.

“The hospital market — and indeed the entire medical market — is highly regulated. For example, if you wanted to start a new restaurant, as long as you can find backers and a location, you can go out and start that restaurant.

“You can’t do that with a hospital. If a bunch of investors want to start a new hospital they just can’t go out and do it. They have to go through a number of regulatory hoops. The public sector has to look at the number of beds and whether they will be filled or not filled, etc. And so what you find is that in many local markets you don’t have a lot of hospitals competing.

“Now in normal economics when you don’t have a lot of competition, you usually see higher prices, so a good question here is, in markets where you have very few hospitals competing, do you have higher hospital prices?

“Well, we have got some new research from the National Bureau of Economics Research. It’s a private economics think tank, and they found that the answer is yes: Where there’s very little competition, you are going to have higher hospital prices.

“In fact they found that in markets where there was only one hospital — no competition at all — prices for comparable hospital services were 15 percent higher than in markets where there were four or more hospitals competing.

“So I think this is a factor that we want to talk about. I am glad that we are hearing about in the presidential campaign. It’s obviously something that can affect our pocketbook.”