Objectives: To investigate components
of the rapidly increasing trend in hospital spending in the 2000’s and their
relationship to market structure. Study Design: Aggregate time series and multivariate
analysis are conducted to test whether hospital spending growth is driven by
price or quantity and how recent hospital spending growth is related to health
plan and hospital market structure. Method: Hospitals are grouped into strong
and weak competitive markets based on the relative concentration of hospital
and health plan markets as well as managed care penetration. Results: Inflation
adjusted hospital spending grew much faster than gross domestic product (GDP)
throughout the 2000s. Regression results show that rapid growth was observed across all hospital markets—even in those markets
where price competitive market forces are the strongest and that rising
hospital prices, and not utilization explain most of the increases
in hospital spending. Conclusions: Hospital
spending exceeded the consumer price index (CPI) by a substantial margin
in the 2000’s due in part to weakening competitive market forces, which had a
dampening effect on spending and especially prices. Unless competition is
restored, the cost of health care for consumers, employers and public payers
can be expected to increase.
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