Competition among hospitals tends to increase rather than decrease medical costs, a new national study reports.
One reason is that price often isn't the key factor for patients -- especially if their insurance company is paying. Just as hotels, banks and car dealers emphasize the comfort, security and reliability of their products, so do hospitals.
And these nonprice factors -- such as alternative "birthing rooms" for expectant mothers and better parking spaces for doctors -- can raise the price of health care in a competitive market, the new study found.
Average costs per day of patient care were 15 percent higher in the most competitive markets -- those with more than 10 hospitals within a 15-mile radius -- than in hospitals with no nearby competitors. Average cost per admission was 26 percent higher in the most competitive markets.
The study covered 5,732 nonfederal hospitals around the nation, and differences in wage rates, patient mix, state regulations and medical teaching responsibilities were compensated for in the comparisons.
Researchers said the study is the first to document the influence of hospital competition on the costs of community hospitals before implementation of Medicare's prospective payment system, known as diagnostic related groups, or DRGs. Under that system, hospitals are paid the same preset amount for each case involving the same diagnosis.
Traditional market-oriented strategies for curbing health care costs fail to consider the impact of nonprice competition among hospitals, the researchers said.
For example, hospitals compete for patients by offering such options as birthing suites, and for doctors by offering such amenities as convenient parking, office space, clerical services and state-of-the-art technology. Hospitals in the most competitive areas are forced to offer more of these options, which "directly raises the cost of providing care," they said.
The study, by researchers at the University of California at Berkeley and the University of California at San Francisco, was reported in the Journal of the American Medical Association.