The Feasibility of Managed Competition for Hospital Services

Background: Policymakers have long recognized the dearth of competition in health care, and have implemented a variety of policies to promote increased competition in healthcare markets. This ‘managed competition’ is often touted as a panacea for health care, providing additional options for patients while simultaneously lowering costs and improving care quality. However, it is unclear whether sufficient competition is feasible for much of the United States.

Methods: Population estimates for 2015 were obtained from the American Community Survey. These estimates were mapped to local markets for hospital care as defined by the Dartmouth Health Atlas, based on where Medicare patients go for their hospitalizations. Estimates of the population required to support varying hospital types were derived from the Area Health Resource File and previously published estimates. These population thresholds were used to determine whether markets could support three or more hospitals of a given type, and the results were then compared with actual observed hospital distributions and .

Results: In 2015, approximately 38% of the U.S. residents were located in hospital markets that were too sparsely population to support three or more hospitals which could provide tertiary referral services. A slightly higher percentage, 42%, were in markets lacking the population to support three general hospitals. Certain hospital markets cover considerable geographic areas; construction of additional facilities may cause them to split as opposed to increasing intra-market competition. Population sufficiency was strongly correlated with actual hospital competition, but not with per capita health expenditures or utilization.

Conclusions: Policies and efforts to promote competition for hospital services may only be feasible for medium or large-sized urban centers. Hospital markets in much of the country, particularly in the Midwest and Great Plains, may lack the populations necessary to support three-plus general or acute care hospitals. Additional policy tools may be needed to ensure the provision of affordable, high-quality care in these areas.