Community Control and Pricing Patterns of Nonprofit Hospitals: An Antitrust Analysis

• Published in: Journal of health politics, policy and law policy and law, 2000-12, Vol.25 (6), p.1051-1081
• Main Authors: Young, Gary J., Desai, Kamal R., Hellinger, Fred J.
• Format: Article
• Language: English
• Subjects: Acquisitions & mergers; Anti-trust legislation; Antitrust; Antitrust Laws; California; Catchment Area (Health); Communities; Community; Community Participation; Community-Institutional Relations - economics; Competition; Consumers; Cost control; Decision Making, Organizational; Economic Competition - statistics & numerical data; Economic concentration; Economic models; Economic theory; Enforcement; Governing Board - organization & administration; Health Care Sector - statistics & numerical data; Health Care Services; Health Facility Merger - economics; Health Services Research; Hospital Charges; Hospital systems; Hospitals; Hospitals, Voluntary - economics; Hospitals, Voluntary - organization & administration; Market share; Markets; Medicine and Health; Mergers; Models, Econometric; Monopolies; Multi-Institutional Systems - economics; Multi-Institutional Systems - organization & administration; Non-profit organizations; Nonprofit hospitals; Nonprofit Organizations; Organizational Objectives; Political Science; Politics; Prices; Pricing; Pricing policies; Profits; Public Health and Health Policy; Public Policy; Studies
• ISSN: 0361-6878; 1527-1927
• DOI: 10.1215/03616878-25-6-1051

Traditional control of nonprofit hospitals by the communities they serve has been offered as justification for restraining antitrust enforcement of mergers that involve nonprofit hospitals. The community is arguably a constraint on a nonprofit's inclination to exercise market power in the form of higher prices; however, community control is likely to be attenuated for hospitals that through merger or acquisition become members of hospital systems-particularly those that operate on a regional or multiregional basis. We report findings from a study in which we examined empirically the relationship between market concentration and pricing patterns for three types of nonprofit hospitals that are distinguishable based on degree of community control: an independent hospital, a member of a local hospital system, and a member of a nonlocal hospital system. Study results indicated that when conditions existed to create a more concentrated market, (1) all three types of nonprofit hospitals exercised market power in the form of higher prices,and (2) hospitals that were members of nonlocal systems were more aggressive in exercising market power than were either independent or local system hospitals. The results have important implications for antitrust enforcement policy.