In standard economic theory, competitive markets are thought to produce the optimal allocation of resources through their use of pricing signals; but U.S. hospitals have long argued that competition is antithetical to their successful operation, given the unique characteristics of hospital markets, which include natural barriers to entry and hospitals’ safety-net and medical-teaching roles.
This paper examines these core questions of competition in hospital markets as they relate to New York State, particularly in light of the state’s ongoing Medicaid-reform efforts: it explores the implications of hospital consolidation in the Empire State for public payers, commercial payers, and patients—in terms of outcomes and costs.
- Hospital mergers typically result in higher prices, with little improvement in quality; these results are most pronounced in markets that have already experienced a significant degree of hospital consolidation.
- Proponents of greater hospital size tend to ignore the fact that many of the documented benefits derived from hospital mergers are tied to managerial quality, not to size.
- Antitrust litigation—because it is infrequently used and does not address existing factors that limit competition in hospital markets—should be only one of several tools deployed by regulators.