Market Structure and Technical Efficiency in the Hospital Services Industry: A DEA Approach

This article uses data envelopment analysis and multiple regression analysis to examine empirically the impact of various market-structure elements on the technical efficiency of the hospital services industry in various metropolitan areas of the United States. Market-structure elements include the degree of rivalry among hospitals, extent of HMO activity, and health insurer concentration. The DEA results show the typical hospital services industry experienced 11 percent inefficiency in 1999. Moreover, multiple regression analysis indicates the level of technical efficiency varied directly across metropolitan hospital services industries in response to greater HMO activity and private health insurer concentration in the state. The analysis suggests the degree of rivalry among hospitals had no marginal effect on technical efficiency at the industry level. Evidence also implies that the presence of a state Certificate of Need law was not associated with a greater degree of inefficiency in the typical metropolitan hospital services industry.

Does the U.S. health care sector suffer from Baumol's cost disease? Evidence from the 50 states

This study examines if health care costs in the United States are affected by Baumol's cost disease. It relies on an empirical test proposed by Hartwig (2008) and extended by Colombier (2010) and uses a panel data set of 50 states over the 1980-2009 period. The results suggest that health care costs grow more rapidly when economy-wide wage increases exceed productivity gains. The findings are fairly robust with respect to time- and state-fixed effects, individual state time trends, and two-stage least square estimation. Consequently, this study suggests that the U.S. health care sector suffers from Baumol's cost disease.

Examining the link between cash flow, market value, and research and development investment spending in the medical device industry

Unlike the pharmaceutical industry, no empirical research has focused on the factors influencing research and development (R&D) spending in the medical device industry. To fill that gap, this study examines how R&D spending is influenced by prior year cash flow and corporate market value using multiple regression analysis and a panel data set of medical device companies over the period 1962-2008. The empirical findings suggest that the elasticities of R&D spending with respect to cash flow and corporate market value equal 0.58 and 0.31, respectively. Moreover, based upon these estimates, simulations show that the recently enacted excise tax on medical devices, taken alone, will reduce R&D spending by approximately $4 billion and thereby lead to a minimum loss of $20 billion worth of human life years over the first 10 years of its enactment.

Are physicians profit or rent seekers? Some evidence from state economic growth rates

Previous research has debated whether physicians act as profit- or rent-seekers. We argue that these two models of physician behavior can be tested by observing empirically the relationship between physician density and economic growth rates. A direct (inverse) relationship provides evidence for the profit-seeking (rent-seeking) theory of physician behavior. We empirically examine the impact of physician density on the economic growth of all US states over the period from 1973 to 2009. The empirical analysis generally finds a statistically significant and direct relationship between physician density and the growth of gross state product. The results are robust with respect to state- and time-fixed effects, individual state time trends, and 2SLS (two-stage least squares) estimation. Thus, in support of the profit-seeking theory of physician behavior, the findings reveal that physicians generally have a positive impact on the growth of the US economy.

Do hospital chief executive officers extract rents from Certificate of Need laws?

Prior research suggests that Certificate of Need (CON) laws reduce competition in the hospital services industry. As a result, this study empirically investigates if not-for-profit hospital chief executive officers (CEOs) are able to extract rents from CON laws in the form of higher compensation. A sample of 256 not-for-profit hospital CEOs in states with and without CON laws and data for 2007 are used in the empirical analysis. The study considers the endogenous nature of a CON law and allows such a law to indirectly affect CEO compensation through its impact on the number of hospitals and beds. The multiple regression results indicate that special and public interests both motivate the decision of a state to maintain a CON law. CON laws are shown to reduce the number of beds at the typical hospital by 12 percent, on average, and the number of hospitals per 100,000 persons by 48 percent. These reductions ultimately lead urban hospital CEOs in states with CON laws to extract economic rents of $91,000 annually.

Explaining the efficiency of local health departments in the U.S.: an exploratory analysis

No study to date has analyzed the efficiency at which local health departments (LHDs) produce public health services. As a result, this study employs data envelopment analysis (DEA) to explore the relative technical efficiency of LHDs operating in the United States using 2005 data. The DEA indicates that the typical LHD operates with about 28% inefficiency although inefficiency runs as high as 69% for some LHDs. Multiple regression analysis reveals that more centralized and urban LHDs are less efficient at producing local public health services. The findings also suggest that efficiency is higher for LHDs that produce a greater variety of services internally and rely more on internal funding. However, because this is the first study of LHD efficiency and some shortcomings exist with the available data, we are reluctant to draw strong policy conclusions from the analysis.

Not-for-Profit Hospital CEO Performance and Pay: Some Evidence from Connecticut

This paper uses observations from a panel data set of 35 chief executive officers (CEOs) from 29 not-for-profit hospitals in Connecticut over the period 1998 to 2006 to investigate the relationship between CEO performance and pay. Both economic and charity performance measures are specified in the empirical model. The multiple regression results reveal that not-for-profit hospital CEOs, at least in Connecticut, are driven at the margin to increase the occupancy rate of privately insured patients at the expense of uncompensated care and public-pay patients. This type of behavior on the part of not-for-profit hospital CEOs calls into question the desirability of allowing these hospitals a tax exemption on earned income, property, and purchases.

Jurisdiction size and local public health spending

OBJECTIVE

To examine if a minimum efficient scale (MES) holds with respect to the population serviced by a local health department (LHD) given the congestability, externality, and scale/scope economy effects potentially associated with public health services.

DATA SOURCES/STUDY SETTING

A nationally representative sample of LHDs in 2005.

STUDY DESIGN

Multiple regression analysis is used to isolate the relation between population and spending while controlling for other factors known to influence local public health costs.

DATA COLLECTION

Data were obtained from the 2005 National Profile of Local Public Health Agencies, a project supported through a cooperative agreement between the National Association of County and City Health Officials and the Centers for Disease Control and Prevention.

PRINCIPAL FINDINGS

The MES of a local public health department is approximately 100,000 people. After that size, additional population has little impact on public health spending per capita.

CONCLUSIONS

Seventy-seven percent of LHDs in the sample fall below the 100,000 MES. Higher levels of government may want to provide financial inducements so that smaller LHDs consolidate or enter into agreements with larger public health organizations to provide services.

Do health insurers possess monopsony power in the hospital services industry?

This paper uses metropolitan data to test empirically if health insurers possess monopsony or monopoly-busting power on the buyer-side of the hospital services market. According to theory, monopsony power is indicated by a fall in output, whereas, monopoly-busting power is shown by an increase in output when buyer concentration rises. The empirical results provide evidence that greater health insurer buyer concentration is not associated with monopsony power. Instead, some evidence is found to suggest that higher health insurer concentration translates into increased monopoly-busting power. That is, metropolitan hospitals offer increased services when the buyer-side of the hospitals services market is more highly concentrated.

Ownership form and consumer welfare: evidence from the nursing home industry

This paper compares the likely consumer benefits of higher quality with the potentially greater production costs that result from increased not-for-profit activity in a nursing home services market area. The comparison of consumer benefits and costs is made possible by observing empirically how an increased market penetration of not-for-profit facilities affects the use of private-pay nursing home care. Increased (decreased) use of nursing home care suggests that the consumer benefits associated with additional not-for-profit nursing homes are greater (less) than consumer costs. The empirical results indicate that, from a consumer's perspective, too few not-for-profit nursing homes may exist in the typical market area of the United States. The policy implication is that more quality of care per dollar might be obtained by attracting a greater percentage of not-for-profit nursing homes into many market areas.

Market structure elements: the case of California nursing homes

This article empirically examines how various elements of market structure affect the pricing behavior and profitability of individual nursing homes in California. Market structure elements include seller concentration, the concentration of nursing homes organized on a nonprofit basis, and concentration of nursing homes organized on an independent basis in the market area. It is hypothesized that the latter two variables affect the nature of competition in the market area. Using data for year 2000, the empirical results suggest that both the private payer price and Lerner index are higher in nursing home market areas with increased seller concentration and concentration of secular, not-for-profit nursing homes. Neither price nor profitability is influenced by the market concentration of independent nursing homes, however. All in all, the study suggests that the typical California nursing home possesses some degree of market power, even in the absence of a state certificate of need law.

The consumer welfare implications of the hospital ownership mix in the US: an exploratory study

This paper offers an empirical test concerning how hospital ownership mix affects consumer welfare in the US. The test compares the market benefits and costs resulting from an increased presence of nonprofit hospitals by observing empirically how the nonprofit market share impacts hospital care utilization at the margin. The empirical results suggest that too many not-for-profit and public hospitals exist in the inpatient care segment of the typical hospital services industry of the US. In contrast, the empirical findings indicate that too many for-profit hospitals operate in the outpatient care portion of the hospital services industry. The policy implication is that more quality of care per dollar might be obtained by promoting increased for-profit activity to inpatient care and more nonprofit activity to outpatient care in some market areas. This conclusion, however, is tempered with several caveats. We discuss these and also make recommendations for further research.

The welfare loss from hospital cost-shifting behavior: a partial equilibrium analysis

Cost shifting occurs when changes in administered prices of one payer lead to compensating changes in prices charged to other payers. Microeconomic theory suggests that cost shifting can take place under limited conditions and some empirical studies indicate that that hospital cost shifting may have actually occurred at various times. This study designs a model to conceptualize and quantify the potential welfare loss caused by hospital cost shifting under idealized yet fairly plausible conditions. The resulting estimate yields only a small efficiency loss of at most, 0.84% of private hospital expenditures in the US for 1992.

The effect of competition on reserve capacity: The case of California hospitals in the late 1990s

This paper empirically investigates how competitive forces have affected bed capacity in the California hospital services industry using a data set for the late 1990s. The empirical results offer several conclusions about the effect of different types of competition on bed capacity during a period characterized by heightened price consciousness. In contrast to earlier periods, hospitals are found to continuously react to increased inter-hospital competition by reducing the supply of beds relative to patient demand. Similar to earlier periods, the empirical results suggest that increased physician/supplier competition leads to a reduction in bed capacity. Finally and in contrast to earlier studies, findings indicate that increased payer competition, as measured by the percentage of managed care patients in the market area, causes less bed capacity up to a point.

The inequity of Medicaid reimbursement in the United States

The United States Medicaid programme aims to provide public health insurance to certain categories of the low-income population. Considerable non-uniformity exists within the programme because each of the 50 states, Washington, DC and 5 territories are individually responsible, within broad federal guidelines, for its administration. The non-uniformity shows up in different eligibility requirements, benefits and health care provider reimbursement rates. This paper examines reimbursement rate variations across individual programmes and discusses how these variations affect health care provider participation. Dual market theory suggests, and empirical results conclude that low reimbursement rates cause health care providers to participate less fully in the programme. Variations in access to medical care because of differences in reimbursement rates thereby create severe horizontal and vertical inequities across programmes. To reduce these inequities, the federal government might offer earmarked grants for the mandated purpose of raising reimbursement rates to a uniform percentage of private rates in all programmes.

The effect of the ACOG guideline on vaginal births after cesarean

In October 1988, the American College of Obstetricians and Gynecologists (ACOG) issued a physician practice guideline stating that a prior cesarean section is no longer a reason for performing a repeat C-section. Using a panel data set consisting of 55 Massachusetts hospitals over the years 1987 to 1991, this study examines if the ACOG guideline had any impact on the practice of vaginal births after cesarean (VBACs) at the typical hospital. The empirical results suggest that the ACOG guideline led to a permanent 5.6 percentage point increase in the VBAC rate, ceteris paribus. As a result, the study suggests that practice guidelines do sometimes work. The information dissemination role of the popular press may provide the reason why the AGOG guideline influenced the practice of VBACs.

The determinants of hospital CEO compensation

This study finds a significant difference in the compensation levels of public and private hospital CEOs. The difference, however, is not found to be associated with ownership structure. Rather, it is attributable to hospital characteristics such as size, location, and affiliation with a multihospital chain, and human characteristics such as gender, education, and experience.