8(40)
2
Competition in health care
There has been a rapid and steady growth in health care spending during
the past century throughout all OECD countries.
2
In the 1960s and 1970s,
government efforts to control costs were aimed at the macro level, i.e.
by rationing through regulation of prices and volumes. However, during
the 1980’s the focus of cost containment policies started shifting towards
the micro level, i.e. by encouraging more efficient provision rather than
cuts in entitlements (Docteur and Oxley, 2003). Markets therefore play
an important role today in the provision of health care services.
3
Prices,
qualities
4
and quantities are thus set through interactions in the market
place between providers and payers (Gaynor and Town, 2011).
Consequently, there is an increasing literature on the industrial
organization of health care.
2.1
Empirical literature on price competition
The most active area in the literature on competition in health care is
focused on hospital competition in the United States, more precisely
the relationship between hospital concentration and prices. The recent
empirical literature is surveyed in Gaynor and Town (2011) and general
finding is that prices on average are higher on hospital markets with little
competition.
5
However, as discussed by Capps and Dranove (2004) and
Gaynor and Town (2011), there are caveats with the existing literature
and the results should therefore be interpreted with some caution.
Firstly, the price variables are often constructed aggregated measures
and not actual transaction prices.
6
This may be especially problematic
in the US setting, where prices are set in complicated hospital-insurer
contracts (Gaynor and Town, 2011) and public and private payers pay
different prices for the same services (Dranove et al., 1993). Without the
possibility to control for these differences, the results may be misleading.
2
Several explanations to the health care spending growth has been put forth in the
literature, the most common being technological change combined with increased
coverage (Chernew and Newhouse, 2011).
3
The US has the longest experience of competition in health care. Market-oriented
reforms has been implemented or are considered in the U.K., Sweden, France,
Germany and the Netherlands (Gaynor, 2012).
4
Quality is here referred to as any non-price attributes.
5
Similar results are found in earlier reduced form studies (e.g. Dranove et al., 1993;
Noether, 1988).
6
See for example Capps and Dranove (2004); Dranove et al. (1993); Noether
(1988); Thompson (2011).
