Horizontal and vertical concentrations in the evolution of hospital competition.

: Summing across the three phases, the pattern of evolution was as follows: (1) the emergence of a market orientation by hospitals as the industry moved away from regulation; (2) steady expansion of what the hospitals considered to be their business, to include nonacute and wellness services, with vertical integration and diversification the vehicle for accomplishing this; (3) remarkable change with respect to who was competing with whom, stemming from restructuring of the market toward horizontal concentration and domination by a few rather than continuing open competition among many; (4) a shift in the market from one of competitive consumer choices among physicians and hospitals toward one of competitive choice among health plans; and (5) the beginnings of price dynamics within the context of oligopoly, due primarily to heightened power of corporate and other purchasers. A striking feature of this evolution was the role of concentration as both a response to increased competition and a vector of change in restructuring the market. Another notable feature was the relationship of vertical and horizontal integrations to each other: Stage I corporate reorganization and limited vertical integration provided the vehicle for horizontal integration in Stage II; then horizontal integration achieved a new critical mass and market dominance, yielding more vertical integration in Stage III. Finally, we note that of the numerous reasons advanced for mergers in industrial sectors and among hospitals in particular, a singular motivation was pursued in Community A: in an era of increasing competition, the stronger hospitals moved with determination to reduce competition and establish domination. The fundamental motive was market control.