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Competition and Health-Care Spending: Theory and Application to Certificate of Need Laws

James Bailey () and Tom Hamami

No 19-38, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Hospitals and other health-care providers in 34 states must obtain a Certificate of Need (CON) from a state board before opening or expanding, leading to reduced competition. We develop a theoretical model of how market concentration affects health-care spending. Our theoretical model shows that increases in concentration, such as those brought about by CON, can either increase or decrease spending. Our model predicts that CON is more likely to increase spending in markets in which costs are low and patients are sicker. We test our model using spending data from the Household Component of the Medical Expenditure Panel Survey (MEPS).

Keywords: competition; health-care spending; Certificate of Need; Medical Expenditure; Panel Survey (search for similar items in EconPapers)
JEL-codes: I11 I18 L10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea
Date: 2019-10-03
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DOI: https://doi.org/10.21799/frbp.wp.2019.38

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