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Lecture Health economics - Chapter 10: The hospital market (Part 2)

This chapter presents the following content: Structure - Putting it all together, case study conclusion, dorfman-steiner model of advertising, what type of advertising will hospitals use? Hospital conduct, does ownership type affect conduct?. | The Hospital Market, Part 2 Professor Vivian Ho Health Economics Fall 2007 Structure: Putting it all Together Is the hospital market competitive, or not? Case Study: UNITED STATES OF AMERICA, Plaintiff, vs. MERCY HEALTH SERVICES and FINLEY TRI-STATES HEALTH GROUP, INC. Defendants. Filed October 17, 1995 Mercy and Finley: only 2 acute care hospitals in Dubuque, Iowa propose to merge. Justice Department sues for preliminary injunction. Facts Dubuque population = 86,403 Mercy: 320 staffed beds, average daily census = 127. Finley: 124 staffed beds, average daily census = 63. competition - outside 70m radius, but within 100 m. Waterloo Dubuque Cedar Rapids Iowa City, Iowa Madison, Wisconsin Freeport, Illinois Insurance coverage for Mercy/Finley patients 50% Medicare/Medicaid 25% Fee-for-service (traditional indemnity) 25% Managed care (HMOs, PPOs) Negotiated 15-30% hospital price discounts. Justice Department case 1) Where do Dubuque patients go for hospital care? 88% inside (Mercy or Finley) 12% outside 2) Where are Mercy/Finley patients from? 76% inside (Dubuque) 24% outside Dubuque the relevant geographic market, and merger constitutes a monopoly. Ruling District court judge rejects Justice Department’s definition of geographic market as too narrow. “The government continues to fail to look at the merger within the context of current market trends. All evidence is that there is a great deal of competition for health care dollars ” “ if DRHS [merged entity] reacted in a noncompetitive manner, an HMO that could successfully induce Dubuque area residents to use alternative hospitals would be at a significant cost advantage.” “There is also evidence that managed care entities can successfully induce Dubuque residents to use other regional hospitals for their inpatient needs.” Merger of Mercy and Finley would not/could not result in higher prices. Case Study Conclusion Even if only one hospital exists in a given geographic region, it | The Hospital Market, Part 2 Professor Vivian Ho Health Economics Fall 2007 Structure: Putting it all Together Is the hospital market competitive, or not? Case Study: UNITED STATES OF AMERICA, Plaintiff, vs. MERCY HEALTH SERVICES and FINLEY TRI-STATES HEALTH GROUP, INC. Defendants. Filed October 17, 1995 Mercy and Finley: only 2 acute care hospitals in Dubuque, Iowa propose to merge. Justice Department sues for preliminary injunction. Facts Dubuque population = 86,403 Mercy: 320 staffed beds, average daily census = 127. Finley: 124 staffed beds, average daily census = 63. competition - outside 70m radius, but within 100 m. Waterloo Dubuque Cedar Rapids Iowa City, Iowa Madison, Wisconsin Freeport, Illinois Insurance coverage for Mercy/Finley patients 50% Medicare/Medicaid 25% Fee-for-service (traditional indemnity) 25% Managed care (HMOs, PPOs) Negotiated 15-30% hospital price discounts. Justice Department case 1) Where do Dubuque patients go for hospital care?