Competition Under Fixed Prices

Dialysis services for patients with end-stage renal disease (ESRD) are delivered by predominantly private providers competing in local markets. Because prices are fixed by Medicare, providers can compete only on product quality. Using 1990 data on multiple competition measures, the author examined how competition under fixed prices influences hemodialysis providers' strategies for patient selection and service levels. She found that provider strategies vary with competition, but that competitive effects are not dominant and differ by provider type. Providers with greater competition accept more costly patients, which suggests that competition may contribute to changes of the Medicare ESRD population to an older and sicker patient mix. In more competitive markets, only hospital-based facilities use richer staffing. For-profit, free-standing facilities in all markets have lean staffing. Rural facilities have higher staff productivity than facilities in concentrated urban markets.