Regionalization versus competition in complex cancer surgery

Vivian Ho, Robert Town and Martin J. Heslin

Health Economics, Policy and Law, 2007, vol. 2, issue 1, 51-71

Abstract: The empirical association between high hospital procedure volume and lower mortality rates has led to recommendations for the regionalization of complex surgical procedures. While regionalization may improve outcomes, it also reduces market competition, which has been found to lower prices and improve health care quality. This study estimates the potential net benefits of regionalizing the Whipple surgery for pancreatic cancer patients. We confirm that increased hospital volume and surgeon volume are associated with lower inpatient mortality rates. We then predict the price and outcome consequences of concentrating Whipple surgery at hospitals that perform at least two, four, and six procedures respectively per year. Our consumer surplus calculations suggest that regionalization can increase consumer surplus, but potential price increases extract over half of the value of reduced deaths from regionalization. We reach three conclusions. First, regionalization can increase consumer surplus, but the benefits may be substantially less than implied by examining only the outcome side of the equation. Second, modest changes in outcomes due to regionalization may lead to decreases in consumer surplus. Third, before any regionalization policy is implemented, a deep and precise understanding of the nature of both outcome/volume and price/competition relationships is needed.

Date: 2007
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