Hospital Capital Expenditures Associated With Prices And Hospital Expansion Or Withering, 2010-19.

Abstract

Prices charged by hospitals in commercial markets are, on average, high and growing rapidly, and they vary within markets. The narrative around these facts has focused on hospitals gaining market power through mergers and acquisitions. Hospitals may also increase their market power by investing in capacity, services, or amenities that, although potentially desirable, increase demand and differentiate them from competitors. Independent of market-power changes, average prices may increase if volume shifts toward high-price hospitals. This study investigated the market dynamics linking hospital capital expenditures during the period 2010-19 to changes in volume, market share, and prices. We found that hospitals investing more in capital gained market share and raised prices, whereas hospitals investing relatively less in capital lost market share and increased prices less. Taken together, these forces perpetuate a cycle of expanding and withering hospitals. Study findings suggest important limits to antitrust as a mechanism to address high and rising prices, and the findings could inform policies to forestall or eliminate the financial decline of withering hospitals, thereby preserving access and promoting competition.