Less competition can lead to higher health costs

Smaller markets with less competition seem to be breeding grounds for higher private healthcare costs, according to a recent study published in the American Journal of Managed Care. However, Medicare spending rates did not correlate with that finding, and in fact increased in bigger markets.

"The degree of provider competition in local markets should affect prices in commercial markets but not Medicare, which uses administered pricing," the study noted. "For example, significant hospital capacity or competition may allow commercial insurers to bargain successfully relative to Medicare, whereas markets with little provider competition may result in commercial payers being charged more relative to Medicare."

The study also pointed out that commercial insurers can better take advantage of competition, thus making them "more vulnerable" to market focus.

According to the Wall Street Journal Health Blog, this study's results contradict a prior study comparing hospital prices to an "arms race." In such a scenario, costs are driven higher and higher as competition and technology increase.

To learn more:
- read the American Journal of Managed Care study
- check out the WSJ Health Blog article