Abstract
Purpose. Rate regulation and managed competition are instruments by which public and private sectors have tried to curtail health care costs since 1982. Studies based on regulation and/or competition's effects on hospital costs up to 1986 report minor influence on stabilizing expenditures. This study analyzes costs applicable to hospitals in competitive markets in California after 1986. Theoretical framework. Economic theory purports that elasticity of demand is like a natural law, given by technology and consumer tastes. However, this thesis is something that suppliers, purchasers and public policy can and do influence a great deal. In fact, managed competition has skewed this law by allowing for the provision of utility based on non-price competition; propagating increased services, technologies and personnel costs in markets with higher levels of contest. The locus of this study re-affirms this inelasticity of demand by negating the marginal revenue curve often projected in free market ideology. Methodology. Secondary data were used to assess costs per competitive structure for 1988/1994. Variables used for cost assessment were market structure and hospital-specific characteristics. For this multivariate study, the researcher used analysis of variance, F-test, t-test of difference and stepwise hierarchial multiple regression. Findings. When hospital are defined by neighboring characteristics within a 15-mile radius, it is found that: (1) increased competition does affect costs; services, labor and capital outlays are increased significantly; (2) of those hospital-specific variables analyzed, Medicare, Medi-Cal, "Other" and inpatient days were the best predictors of hospital costs; (3) there is a positive correlation between market structure and payer types signifying patient mix as a strong determinant for measuring hospital costs; and (4) wages appear to be correlated with competition; capital expenditures, even though considerably higher in particular market structures, are not. Conclusions and recommendations. Costs are about 30 percent higher for 1994 than for 1988, leaving significant doubt that managed competition/rate regulation is working. This infers prices for goods and services are inelastic leaving little initiative for the private sector to change direction. It is suggested that future policies specific to health care cost containment should focus more on free market ideology rather than non-price competition.