*international poverty research*. Oslo: Scandinavian University Press. **Part 3**

**Social Welfare: Competition and Negotiation** 

152 Social Welfare

Øyen, E., Miller, S. M. & Samad, A. A. (1996). *Poverty. A global review. Handbook on* 

**7** 

*USA* 

Helen Schneider

*University of Texas at Austin,* 

**Can Competition Save Your Life?** 

During the past decade the hospital industry introduced profound organizational changes, including the extensive consolidation of hospitals through the mergers and formation of hospital systems. In addition, faced with falling profit margins, hospital industry saw an unprecedented wave of hospital closures and loss in operative capacity (Hsia et al. 2011). Both trends tend to decrease the existing competitive pressures for hospitals in the market. This Chapter will investigate whether changes in competition in hospital markets tangibly affect health outcomes as measured by risk adjusted mortality rates after coronary artery bypass grafting (CABG) surgery. In this kind of surgery, a vein or artery from another part of the body is used to create a new path for blood to flow to the heart, bypassing the blocked artery. Since CABG is typically not an emergency but a scheduled procedure, hospital competition (based on health outcomes) is more likely to affect mortality rates and other measures of quality than in emergency cases where both the patients and treating

Economic theory predicts that concentration of market power leads to higher prices. This may or may not hold true in the healthcare industry due to the prevalence of public insurance, managed care pressures, as well as the prevalence of nonprofit hospitals. Moreover, higher hospital prices may signal higher quality. Thus, policy makers' attempts to make health care markets more competitive and to depress reimbursements may not necessarily lead to welfare improvements. The study results in this Chapter will contribute to the existing literature by shedding more light on the relationship between hospital competition and health outcomes as measured by risk adjusted mortality rates. If hospitals located in less competitive markets exhibit inferior health outcomes, then the case for promoting competition through antitrust

Previous literature does not provide a clear guidance as to the effects of hospital competition on health outcomes. For example, Propper et al. (2004) examined the relationship between hospital competition and mortality rates after emergency acute myocardial infraction (AMI). They find that higher competitive pressures in Britain's National Health Service actually increased mortality rates for AMI after controlling for patient mix and other observed characteristics of the hospital and its market area. Similarly, using a longer panel of

**1. Introduction** 

**2. Background** 

**2.1 Existing literature** 

physicians have limited hospital choices.

enforcement and support of failing hospitals is strengthened.
