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.
 Dor, A., Grossman, M. and Koroukian, S.M. (2004) Hospital transaction prices and managed-care discounting for selected medical technologies. American Economic Review, 94, 352-356. doi:10.1257/0002828041301786
 Zeckhauser, R., Altman, D. and Cutler, D. (2003) Enrollee mix, treatment intensity, and cost in competing indemnity and HMO plans. Journal of Health Economics, 22, 23-45. doi:10.1016/S0167-6296(02)00094-2
 Friedman, B.S., Wong, H.S. and Steiner, C.A. (2006) Renewed growth in hospital inpatient cost since 1998: Variation across metropolitan areas and leading clinical conditions. American Journal of Managed Care, 12, 157-166.
 Chernew, M., Scanlon, D.P., Lee, W. and Swaminathan, S. (2006) Competition in health insurance markets: Limitations of current measures for policy analysis. Medical Care Research and Review, 63, 37S-55S.
 Chakravarty, S.G.M., Klepper, S. and Vogt, W. (2006) Does the profit motive make Jack nimble? Ownership form and the evolution of the US hospital industry. Health Economics, 15, 345-361. doi:10.1002/hec.1111
 Berenson, R., Ginsburg, P., Christianson, J. and Yee, T. (2011) The growing power of some providers to win steep payment increases from insurers suggests policy remedies may be needed. Health Affairs, 31, 973-981. doi:10.1377/hlthaff.2011.0920