Efforts to evaluate the plethora of recent programs adopted by public and private payers to promote hospital price competition critically depend on the availability of measures of local market structure. To gauge the effects of these policies, researchers must be able to delineate hospital market areas and measure the intensity of competition within these markets. This article reviews alternative methods that have been used to define hospital market areas and measure market structure. The authors propose an empirical patient origin-based method for measuring hospital market structure. The results of sensitivity analyses using data on California hospitals demonstrate the robustness of our measures over a broad range of parameter values.
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