Cost of inpatient care and its association with hospital competition

Background Conventional economic principles suggest that increases in competition are associated with price decreases. The purpose of this study is to determine whether this association holds true between objective measures of hospital competition and gross charges, by analyzing standardized operations where variations in costs should be minimal. Study Design Hospital Market Structure file (from Agency for Healthcare Research and Quality, available for years 2000 and 2003) was linked to Nationwide Inpatient Sample database. Appendectomy, carotid endarterectomy, bariatric surgery, radical prostatectomy, and pyloromyotomy were analyzed, after excluding patients with possible complications. Primary outcomes included total hospital charges. Primary independent variable was Herfindahl-Hirschman Index (HHI) calculated by the Agency for Healthcare Research and Quality for each hospital based on its patient-flow market. Higher HHI represents the presence of more dominant hospitals in the market or lower competition. Results A total of 162,823 patients from 1,492 hospitals (85,791 appendectomies, 38,619 carotid endarterectomies, 18,383 bariatric operations, 16,784 radical prostatectomies, 3,246 pyloromyotomies) were analyzed. Single linear regression analyses demonstrated higher HHI was significantly associated with lower hospital gross charges in all cases. On multivariate analysis, a 1 percentage-point increase on HHI was associated with -$114 for appendectomy, -$163 for carotid endarterectomy, and -$193 for radical prostatectomy (all p ≤ 0.001), and were independent of hospital urbanicity, teaching status, and payer mix. In contrast, no association was found between competition and hospital costs. Conclusions Higher level of hospital competition is associated with higher hospital gross charges, although competition intensity is not associated with hospital costs. These data are important as health policy makers consider possible cost-control measures.