Price and Concentration in Hospital Markets: The Switch from Patient-Driven to Payer-Driven Competition

PERHAPS the most widely accepted paradigm of industrial organization (I/O) is that competition lowers prices or, alternatively, that price/cost margins are lower in less concentrated markets.1 The applicability of this paradigm for hospital markets has been questioned. For example, in United States vs. Carilion Health System and Roanoke Valley Hospital, the district and appellate courts accepted evidence that hospital prices are lower in more concentrated markets and thereby approved a merger between the two largest hospitals in a three-hospital market.2 The view that competition has a weak or perverse effect on hospital prices is shared by a number of researchers,3 is a common theme in newspaper stories