Market Power and Hospital Pricing

Are Nonprofits Different?

Published in: Health Affairs, v. 18, no. 3, May/June 1999, p. 167-173

Posted on RAND.org on January 01, 1999

by Glenn Melnick, Emmett B. Keeler, Jack Zwanziger

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Dramatic changes in hospitals' operating environments are leading to major restructuring of hospital organizations. Hospital mergers and acquisitions are increasing each year, and conversions by hospitals to different forms of ownership also are continuing apace. Such changes require policymakers and regulators to develop and implement policies to ensure that consumers' interests are protected. An important consideration in this process is the impact on the price of hospital care following such transactions. This paper reviews empirical evidence that mergers that reduce competition will lead to price increases at both merging hospitals and their competitors, regardless of ownership status. The authors show that nonprofit and government hospitals have steadily become more willing to raise prices to exploit market power and discuss the implications for antitrust regulators and agencies that must approve nonprofit conversions.

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