Keeping Score: How New York Can Encourage Value-Based Health Care Competition

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.

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