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

21 Pages Posted: 23 Oct 2019

Date Written: 2019-10-03

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

JEL Classification: I11, I18, L10

Suggested Citation

Bailey, James B. and Hamami, Tom, Competition and Health-Care Spending: Theory and Application to Certificate of Need Laws (2019-10-03). FRB of Philadelphia Working Paper No. 19-38, Available at SSRN: https://ssrn.com/abstract=3474362 or http://dx.doi.org/https://doi.org/10.21799/frbp.wp.2019.38

James B. Bailey (Contact Author)

Providence College Department of Economics ( email )

1 Cunningham Sq
Providence, RI 02918
United States

HOME PAGE: http://https://economics.providence.edu/faculty-members/james-bailey/

Tom Hamami

Northwestern University, Department of Managerial Economics and Decision Sciences (MEDS), Students ( email )

Evanston, IL
United States

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