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Objective To examine the effects of hospital and insurer markets concentration on transaction prices for inpatient hospital services. Data Sources Measures of hospital and insurer markets concentration derived from American Hospital Association and HealthLeaders-InterStudy data are linked to 2005–2008 inpatient administrative data from Truven Health MarketScan Databases. Study Design Uses a reduced-form price equation, controlling for cost and demand shifters and accounting for possible endogeneity of market concentration using instrumental variables (IV) technique. Principal Findings The findings suggest that greater hospital concentration raises prices, whereas greater insurer concentration depresses prices. A hypothetical merger between two of five equally sized hospitals is estimated to increase hospital prices by about 9 percent (p

In Finland, health care is mainly publicly funded and responsibility for running health care is devolved to the municipalities (local government). The public health care system provides the largest share of primary and secondary health care services: 71 percent of outpatient physician visits and 95 percent of inpatient care periods (Vuorenkoski 2008). Public primary health care is provided by district health centers employing general practitioners (GPs) who provide most of the day-to-day medical services. Public secondary care is provided by 20 hospital districts employing medical specialists. The hospital district organizes and provides specialist medical services for the population of their member municipalities. Private health care provides both primary and secondary health care services, accounting for 16 percent of outpatient physician visits and 5 percent of hospital inpatient care. In addition to public and private health services, occupational health services provide preventive and day-to-day primary health care for their employees. In addition, occupational health services provide about 13 percent of outpatient physician visits, which are mainly organized by private sector firms (Vuorenkoski 2008). Each health care system (public, private, and occupational health services) receives some public funding, although the financing mechanisms differ. Municipalities fund public health care services and National Health Insurance (NHI) funds a share of private and occupational health care (the NHI reimburses on average 30 percent of the costs of using private health services). Patients can choose between these three health care systems, but substantial user fees can be a barrier to accessing the private sector, and occupational health care is available only to employed people. The Finnish health care system faces many challenges, including a shortage of GPs (Kokko 2009), rising health care costs, and high physician turnover from the public to private sectors (Kankaanranta et al. 2007). Within the last 10 years, a lack of GPs has led to a new trend of leasing the GPs to health centers from private firms. In 2010, 7 percent of GP posts were managed by private firms and 5 percent of health centers had their staffing arranged entirely by private firms (Parmanne 2010). A recent study of Finnish physicians showed that private physicians were more satisfied and committed to their job, and had less psychosocial disorders and sleep problems than public sector physicians. This was partly explained by higher organizational justice and job control in the private sector (Heponiemi et al. 2010a). Private physicians in Sweden had better experiences of their work environment than public sector physicians (Hellgren et al. 2006). In New Zealand, radiologists in the private sector reported less work-related stress and they had less burnout compared with secondary care radiologists (Lim and Pinto 2009). A previous study found that GPs were less committed to their organizations than other physicians (Kuusio et al. 2010). In addition, the same study found that work-related psychosocial stressors such as high job demands, low job control, and poor colleague consultation decreased organizational commitment among GPs. It has repeatedly been shown that a negative psychosocial work environment is associated with health problems such as cardiovascular diseases and symptoms of depression (Umehara et al. 2007; Couser 2008; Nieuwenhuijsen, Bruinvels, and Frings-Dresen 2010). In most theories on stress it has been argued that experienced stress is an outcome of long-term and interactional processes between environmental demands and a physician's ability to meet those demands (Lazarus and Folkman 1984; Selye 1985; McEwen 1998). Thus, it is suggested that environmental factors affect the perception of stress through the appraisal process and this appraisal (perceived psychosocial stressors) may affect psychological and physiological outcomes, such as psychological distress, self-rated health, and work ability (Karasek 1979; Karasek and Theorell 1990). These outcomes can be seen as a continuum. In this study, we expected long-term psychosocial distress to increase physical and mental health problems, and in the long run that may cause deterioration in work ability among physicians. Psychosocial distress, self-rated health, and work ability have been used repeatedly as measures of the different stages of the psychological stress process (Lundberg 1996; Elovainio et al. 2005; von Thiele, Lindfors, and Lundberg 2006). Possible differences in work-related stress across health care sectors may offer one explanation for differences in physician well-being between sectors. The role of psychosocial factors has been widely tested using the established Job Demand-Control-Support (JDC-S) model of Karasek (1979), which has shown that low job control and high demands predict health risks and lower well-being among physicians (Rodriguez et al. 2001; Elovainio et al. 2005; Heponiemi et al. 2008). Previous studies also show the importance of psychosocial stress factors as mediators. For example, an increase in job control acted as the mechanism by which improvements in mental health and sickness absence rates came about after a work reorganization intervention (Bond and Bunce 2001). Less is known about the effects of specific psychosocial work-related factors on physician well-being, such as patient-related issues, role ambiguity, or problems with teamwork. However, some studies show that patient-related stress and role ambiguity may be associated with well-being outcomes and that complex patient information systems increase the workload of physicians (Firth-Cozens 1998, 2003; Coomber et al. 2002; Likourezos et al. 2004; Couser 2008; Boonstra and Broekhuis 2010; Karsh, Beasley, and Brown 2010). In addition, a lack of social support and problems with teamwork has previously been suggested to decrease well-being and work ability among physicians working in hospitals (Kivimaki et al. 2001; Elovainio et al. 2002; Nieuwenhuijsen, Bruinvels, and Frings-Dresen 2010). Even less is known about the differences in these specific psychosocial stressors between physicians working in different health care sectors, such as primary and secondary care and private sectors, and the role they play in well-being differences among physicians. This is despite the fact that they may serve as a basis for appropriate interventions for enhancing well-being, such as decreasing psychosocial distress and health problems and increasing work ability among physicians. This study aimed at extending both theoretically and methodologically on previous studies. One aim was to produce a more detailed description of the specific factors accounting for the differences in well-being of physicians working with patients in different health care sectors. The objective of this study was to explore the role of specific psychosocial stressors that are not usually included in the established stress models/methods (e.g., Rodriguez et al. 2001; Elovainio et al. 2005; Couser 2008; Heponiemi et al. 2010a, b). Thus, we examined the association between working in different health care sectors and well-being indicators (psychosocial distress [GHQ], self-rated health, and work ability) among physicians. In addition, we tested whether specific psychosocial stressors at work (patient-related stress, stresses related to teamwork, stresses related to role ambiguity, and stresses related to patient information systems), in addition to high demands and job control would mediate the potential well-being differences in different health care sectors.

Organizational theorists have long called attention to the ubiquity of rules. Weber, for example, identified rules as a cornerstone of bureaucracies (Weber 1978). Rules are an efficient means of guiding behavior, either by providing actors a template for behavior in a given situation or knowledge of the consequences of a behavior given a situation (March 1991; Kaplow 2000). Rules are a cornerstone of markets because they identify the outcomes associated with action—they provide the ability for producers to plan actions with the assurance that compensation will be received. Within health care, rules describe the conditions under which specific services will be reimbursed. While organizational theorists have extensively examined the dynamics of written rules within organizations (Allison 1971; Zhou 1993; Schulz 1998; March, Schulz, and Zhou 2000; Schulz 2003), within inter-organizational fields (Leblebici and Salancik 1982), and within legal systems (Kaplow 2000), there is little research on the analysis of rule development that guides market functioning. This paper extends this research by examining Medicare contractors' rules for claims payment. The findings elucidate institutional management issues for development of rules for Medicare. This paper also extends research on the involvement of the government in markets. Government involvement occurs through administrative law processes at a national level and through the delegation of responsibility for rule making. The administrative law literature studies the involvement of the government in rules, including analysis of the behavior of regulators and their relationships to other branches of government (Congress, the Executive, and the Judiciary), levels of government (states, localities), and regulated industries (Davis 1972, pp. 123–156). Examples include antitrust, economic or social regulation (pollution, health and safety), and market-based incentives such as emission trading rules (Rabe 1997, pp. 384–401). In this arena, “rule” is generally a term of art, referring to formal processes defined by the Administrative Procedures Act (APA). Administrative agencies also have authority to issue less formal directives without the extensive APA-required procedures (Davis 1972, pp. 88–122). Delegating responsibility for rule making is an alternative to centralized administrative processes. In Medicare's case, the Centers for Medicare and Medicaid Services (CMS) contracts with private sector organizations to administer coverage and claims payment. These organizations must comply with Medicare's procedural rules and, in turn, they have discretion to develop policies or payment rules (called local medicare review policies or LMRPs) that apply in the contractors' local jurisdictions. This paper examines LMRPs. The paper seeks to determine whether differences across policy types, particularly in technology type, are consistent with delegation to local contractors.

Policymakers' promotion of HMO enrollment for Medicare beneficiaries during the 1990s proved to be a risk-ridden experience for all parties. Throughout the decade, policymakers, health plans, and Medicare beneficiaries were on a roller coaster ride that provided first an exhilarating climb, then an unnerving leveling off, followed by a steep drop in Medicare HMO membership and health plan participation. Since 1998, policymakers have been distressed, health plans dismayed, and Medicare beneficiaries disturbed and dislocated by developments far different from their original expectations. This tumultuous period in the history of Medicare's HMO program has been the focus of considerable research and commentary, reflecting the political, economic, and social salience of the Medicare program and the very visible manner in which the misfortunes of the Medicare HMO strategy have been played out. Previous empirical research on HMOs' participation in Medicare consistently found payment rates to be the most significant factor in influencing health plans' entry, retention, and overall financial success (Adamache and Rossiter 1986; Porrell and Wallack 1990; Pai and Clement 1999). Brown and Gold (1999) contributed a more holistic model of factors asserted to promote or impede the growth of Medicare managed care, and in a detailed assessment of four markets in the mid-1990s, sorted these forces into two general categories: distinctive features of Medicare managed care and market factors. Building on previous research and conceptual frameworks, the present study explores the interplay between government policy, health plans' strategic objectives, and health plans' operational experience in the Medicare HMO program between 1996 and 2001. Data for the study come primarily from interviews conducted in 1996, 1998, and 2000 with health plans and providers in 12 nationally representative urban communities as part of the Community Tracking Study (CTS). This paper presents findings from the site visit interviews in these communities. It also discusses implications and conclusions from the analysis for policymakers and others. One of the key lessons that can be drawn from this study is that conditioning public policy aims on the behavior of private organizations with their own goals and objectives introduces a complex chain of events that may not come to pass or may not be sustainable. Moreover, national policy initiatives in the health care realm are extraordinarily dependent on local market circumstances, as revealed in cross-market studies that capture the interaction among aims and actions of health plans, providers, and beneficiaries in diverse communities. Participation in the Medicare HMO program is a complicated choice process for all of these parties, and is affected both by actions taken by national policymakers and the strategic and tactical maneuvering by private decision makers in local markets.

Despite efforts to reduce hospital utilization and length of stay, hospital care continues to account for a substantial portion of total health care expenses (Levit et al. 2002; Agency for Healthcare Research and Quality 2000). In addition, spending on hospital care is on the rise once again. In 2000, hospital inpatient and outpatient services accounted for 43 percent of the growth in total health care spending, more than twice the share of the 1999 increase (Strunk, Ginsburg, and Gabel 2001). Over the past three decades, public and private purchasers turned to managed care plans to stimulate greater hospital competition and reduce hospital expenditures and costs.1 Two techniques managed care plans used to achieve these goals were selective contracting and utilization management. As we discuss further in the background section, these techniques and other market dynamics weakened hospitals' negotiating leverage with plans. The purpose of this paper is to provide a recent but longitudinal description of managed care plan–hospital contracting. In particular, the paper focuses on hospitals' market power in contract negotiations with plans.2 Plan–hospital negotiations continue to be a critical nexus where competitive market forces meet in the managed care world, with significant implications for the organizations involved, the patients and communities they serve, and health care expenses. Market power is defined as the degree of control or influence an organization has over another organization (Scott 1987; Emerson 1962).3 Control or influence is shaped by the willingness and ability of one organization to sanction (i.e., punish or reward) another organization that it interacts with to attain key goals, such as survival, growth, or increased margins. The origin of market power is the dependency one organization has on the resources controlled by another. Two specific questions about hospitals' market power are addressed in this paper. First, how has hospitals' negotiating leverage with managed care plans changed from 1996 to 2000? Second, what factors explain any changes in hospitals' negotiating leverage between 1996 and 2000? Our findings suggest that many hospitals' negotiating leverage increased significantly since 1996, with the largest gains occurring over last two years. While almost all hospitals were “contract takers” in 1996, some hospitals are now “contract makers or breakers.” The negotiating leverage of other hospitals has improved as well, although less dramatically. Two types of evidence support this conclusion. First, serious contract disputes were much more frequently reported in 2000 compared with 1996. The prevalence of these disputes across diverse markets signals hospitals' increased willingness to exercise market power, as well as their assessment that they have the ability to do so given current market conditions. We observed contentious disputes in 7 out of 12 markets, and reports of other serious contract disputes throughout the country have appeared in the trade literature (for example, see Benko and Bellandi 2001). In some cases, hospitals terminated contracts, a behavior unheard of in the mid-1990s. Second, different types of respondents all perceived that hospitals were “winning” disputes. They noted that hospitals have been able to secure payment rate increases and significantly influence other contract terms. While there is variation across markets and within the hospital sector, a major change over the past five years is that many hospitals are now willing, and successfully able, to exercise market power in contract negotiations. We argue that between 1996 and 2000, significant changes in three areas converged to increase hospitals' market power: the policy and purchasing context in which plan–provider contract negotiations take place, the managed care plan market, and the hospital market. We identify specific changes in each of these three areas noted by interview respondents and largely supported by secondary quantitative data and describe how they impact hospitals' negotiating leverage with plans. Our findings are consistent with prior research. Many previous studies documented factors that result in plans' increased negotiating leverage with hospitals. This recent, longitudinal study shows that many of these factors are still important but that the direction of change has reversed, shifting market power back to many hospitals. These findings also provide insight into why hospitals are now more willing to exercise market power; hospitals may have had some ability to exercise market power several years ago but they did not use it. Recently, hospitals' increased financial distress and a sense of opportunity converged, leading them to exercise their leverage with plans.

This study adapts Andersen's Behavioral Model to determine if health sector market conditions affect vulnerable subgroups' use of alcohol, drug, and mental health services (ADM) differently than the general population, focusing specifically on community-level predisposing and enabling characteristics.Wave 2 data (2000-2001) from the Health Care for Communities study, supplemented with cases from wave 1 (1997-1998), were merged with area characteristics taken from Census, Area Resource File (ARF), and other data sources.The study used four-level hierarchical logistic regression to examine access to ADM care from any provider and specialty ADM access. Interactions between community-level predisposing and enabling vulnerability characteristics with individual race/ethnicity, age, income category, and insurance type were explored.Nonwhites, the poor, uninsured, and elderly had lower likelihoods of service use, but interactions between race/ethnicity, income, age and insurance status with community-level vulnerability factors were not statistically significant for any service use. For ADM specialty care, those with Medicare, Medicaid, private fully managed, and private partially managed insurance, the likelihood of utilization was higher in areas with higher HMO penetration. However, for those with other insurance or no insurance plan, the likelihood of utilization was lower in areas with higher HMO penetration.Community-level enabling factors explain part of the effect of disadvantaged status but, with the exception of the effect of HMO penetration on the relationship between insurance and specialty care use, do not modify any of the residual individual-level effects of disadvantage. Interventions targeting both structural and individual levels may be necessary to address the problem of health disparities. More research with longitudinal data is necessary to sort out the causal direction of social context and ADM access outcomes, and whether policy interventions to change health sector market conditions can shift ADM treatment utilization.

To determine whether hospital mortality rates changed in New Jersey after implementation of a law that changed hospital payment from a regulated system based on hospital cost to price competition with reduced subsidies for uncompensated care and whether changes in mortality rates were affected by hospital market conditions.State discharge data for New Jersey and New York from 1990 to 1996. Study Design. We used an interrupted time series design to compare risk-adjusted in-hospital mortality rates between states over time. We compared the effect sizes in markets with different levels of health maintenance organization penetration and hospital market concentration and tested the sensitivity of our results to different approaches to defining hospital markets.The study sample included all patients under age 65 admitted to New Jersey or New York hospitals with stroke, hip fracture, pneumonia, pulmonary embolism, congestive heart failure, hip fracture, or acute myocardial infarction (AMI).Mortality among patients in New Jersey improved less than in New York by 0.4 percentage points among the insured (p=.07) and 0.5 percentage points among the uninsured (p=.37). There was a relative increase in mortality for patients with AMI, congestive heart failure, and stroke, especially for uninsured patients with these conditions, but not for patients with the other four conditions we studied. Less competitive hospital markets were significantly associated with a relative decrease in mortality among insured patients.Market-based reforms may adversely affect mortality for some conditions but it appears the effects are not universal. Insured patients in less competitive markets fared better in the transition to price competition.

As health care inflation reached double-digit rates of annual increase in the early 1990s, many touted the promise of managed care to foster a more efficient and effective delivery system. While many private employers moved their employees into managed care plans, the Clinton health plan of 1993 acted as a catalyst for a “managed care revolution,” raising expectations for rapid diffusion. Although by 1994 it became clear that the legislation would not pass, many in the health care industry quickly embraced the concept that markets would evolve into highly integrated delivery systems, and many of the changes anticipated under the Clinton plan were, in fact, set in motion (Ginsburg 1996; Shortell and Hull 1996). Between 1990 and 1995, the number of public and privately insured enrolled in a health maintenance organization (HMO) grew from 36.5 million to 58.2 million, and by 1995, the majority of Americans with employer-based health insurance were enrolled in some form of managed care plan (Gabel 1997). These plans relied on selective provider networks and negotiated payment rates to help infuse greater cost-consciousness on the part of providers (Zwanziger, Melnick, and Bamezai 2000; Mobley 1998; Bindman et al. 1998). Some used risk-based payment arrangements to give providers financial incentives to manage service utilization (Conrad et al. 1998; Kralewski et al. 2000; Hillman, Pauly, and Kerstein 1989; Hellinger 1996; Kohn 2000; Grossman 2000). And many actively managed patients' access to care, using gatekeepers and prior authorization requirements (Rask et al. 1999; Kravitz et al. 1998; Meyer et al. 1996; Hurley, Fruend, and Gage 1991). However, unlike the Jackson Hole Group model that served as the intellectual underpinning for much of the Clinton plan (Enthoven and Singer 1994), very few employers offered their employees a choice of plans with a fixed contribution. Many employers simply replaced traditional indemnity offerings with only managed care options, in some cases offering only a single option for coverage (Trude 2000). This approach disenfranchised consumers and contributed to the growth of intense consumer backlash that has sent managed care into retreat (Ginsburg and Lesser 1999; Lesser and Ginsburg 1999; Blendon et al. 1998; Robinson 2001). It also diminished incentives for health plans to compete on the basis of quality—one of the major promises of the managed competition theory (Hibbard et al. 1997; Maxwell, Temin, and Watts 2001). Since 1996, the Center for Studying Health System Change's Community Tracking Study (CTS) has been following how the managed care revolution and the associated backlash have transformed local health care markets nationally. This paper provides an overview of major changes that have occurred in the most recent stage of the managed care era—1999 to 2001—and reflects on these changes in the context of expectations in the mid-1990s when managed care was in ascendance. The paper highlights conclusions of numerous other analyses based on the CTS data from 2000–2001 that detail changes in particular aspects of the health care system, such as how health plans' approaches to managing care have changed or how employers have responded to rising premiums (Draper et al. 2002 and Trude et al. 2002). Many of these more detailed analyses are included in this special issue and some have been published elsewhere.1 This paper takes a broad view of the health care market as a whole, discussing changes by purchasers, health plans, providers, and in public policy to identify the major ways in which local health care markets changed during this period. Ultimately, we conclude that although the managed care revolution has evolved quite differently than expected, it continues to play a major role in shaping local health care markets, although it does so with diminished potential to control costs and promote quality and in the process it creates some new access problems for consumers.

Hospice offers substantial benefits to patients at the end of life. It can be delivered in a patient's home, facilitating at-home death (Moinpour and Polissar 1989; Mor and Hiris 1983). Hospice care optimizes relief of pain and other symptoms (Greer et al. 1986) as well as patient and family satisfaction (Dawson 1991; Kane et al. 1985; Wallston et al. 1988). Hospice use before death also appears to decrease the burden of bereavement in surviving spouses (Christakis and Iwashyna 2002). Thus, hospice facilitates many things patients say they want at the end of life (Steinhauser et al. 2000). Despite these many benefits, hospice appears to be underutilized. Although physicians feel that patients should spend about 12 weeks with hospice services, (Iwashyna and Christakis 1998) the median duration in 1993 was only 30 days (Christakis and Iwashyna 2000). Likewise, there is enormous variation in the proportion of elderly decedents who have used hospice across counties, as shown in Figure 1 (Christakis 1998). In 1996, rates of hospice use among decedents varied more than 11-fold between metropolitan statistical areas. (Virnig et al. 2000). Figure 1 Percentage of Total Deaths that Were Cared for Under the Medicare Hospice Benefit in 1993, by County The roots of this variation are complex. Some lie within the physician–patient dyad. There is substantial variation across diagnoses in the use of hospice: cancer patients are disproportionately represented among hospice users (Iwashyna, Zhang, and Christakis 2002). This may be related to differences in the predictability of the natural history of the diseases (Teno et al. 2001). The substantial complexity of prognosis appears to play a key role in explaining delayed referral (Christakis 1999; Lynn, Teno, and Harrell 1995). Demographic and other characteristics, such as age, sex, ethnicity, dementia-status, and drug-abuse history all appear to influence referral to hospice; it is not clear to what degree these differences result from differences in preferences for end-of-life care, differences in the natural history of disease, or differences in treatment recommendations (Christakis and Iwashyna 2000). On the patient's side, the perception of a shorter prognosis (Weeks et al. 1998) and a greater impact of the disease on family members are both associated with preferences for palliative care (Covinsky et al. 1994). Is there a role for market factors in whether and when hospice is used? There has been very little work looking at the influence of market-level factors on rates of hospice use; in contrast, the variation between markets in the utilization of other types of health care has been well documented in the small-area variations literature. The important influence of factors such as the availability of hospital beds and HMO (health maintenance organization) penetration on many health care decisions is well known (Wennberg and Cooper 1998). In previous studies, greater numbers of hospital days per capita were associated with greater levels of in-hospital death (Pritchard et al. 1998) and lower hospice use (Virnig et al. 2000). In contrast, greater numbers of hospital beds have also been shown to be associated with longer receipt of hospice care among hospice users (Christakis and Iwashyna 2000). Increased hospice use among decedents before death has also been associated with higher HMO enrollment and greater numbers of doctors per capita (Virnig et al. 2000). However, the existing market-factor literature has in general been hampered by methodological problems related to the fact that the objects of study exist at two levels: individual patients and the markets they live in. Analysis solely at one level necessarily introduces strong limitations into the interpretations at the other level. In order to solve this problem, we used hierarchical linear modeling to look at the influence of individual-level and market-level variables on individual hospice use (Bryk and Raudenbush 1992). This lets us control at the individual level for primary diagnosis and comorbidity burden, as well as traditional demographics. At the same time, we can examine county-level indicators of market structure as well as indicators of the relative wealth of the county—a potential confounder. Most importantly, this approach lets us test not merely whether proposed factors are associated with hospice use net of individual factors but also the degree to which those associations explain observed variation in hospice use between counties. Beyond this analytic innovation, this is the first study to use a nationally representative, prospectively defined cohort to analyze the decision to use hospice. We looked at Medicare patients newly diagnosed in 1993 with four conditions: lung cancer, colon cancer, stroke, or myocardial infarction. These conditions were chosen to be typical of the most common causes of death that have a predictably high lethality following a terminal period (so that hospice use could reasonably be considered), and that can be reliably ascertained in the Medicare claims with adequate numbers of events for the type of analyses we propose here. We followed these patients forward for up to five years, by which point more than three-quarters had died, and assessed whether or not those who died used hospice during their terminal period. To our knowledge, virtually all previous work on hospice referral has looked only at “numerator” samples, consisting of those patients who actually went to hospice.

To investigate patterns of competition among hospitals for the business of health maintenance organizations (HMOs). The study focused on the relative importance of hospital price and nonprice attributes in the competition for HMO business.The study capitalized on hospital cost reports from Florida that are unique in their inclusion of financial data regarding HMO business activity. The time frame was 1992 to 1997.The study was designed as an observational investigation of acute care hospitals.Results indicated that a hospital's share of HMO business was related to both its price and nonprice attributes. However, the importance of both price and nonprice attributes diminished as the number of HMOs in a market increased. Hospitals that were market share leaders in terms of HMO business (i.e., 30 percent or more market share) were superior, on average, to their competitors on both price and nonprice attributes.Study results indicate that competition among hospitals for HMO business involves a complex set of price and nonprice attributes. The HMOs do not appear to focus on price alone. Hospitals likely to be the most attractive to HMOs are those that can differentiate themselves on the basis of nonprice attributes while being competitive on price as well.

Competition has been a key concept in the market-oriented U.S. health care system in the last 2 decades. Despite its critical importance, many researchers are not satisfied with the existing methods of measuring competition (Bernstein and Gauthier 1998; Gaynor and Haas-Wilson 1999). One reason for such dissatisfaction is that existing methods often fail to capture fine-grained variations in competition in the local market. Most existing methods, following the structural tradition of Stigler and Sherwin (1985), conceptualize competition as an attribute of the market. Even methods that are designed to measure hospital-level competition first define the market for a hospital and then measure competition based on the market so defined (Luft and Maerki 1984/1985; Zwanziger, Melnick, and Mann 1990). Because of their desire to define all-encompassing, autarkic markets, economists tend to prefer using large geographic areas as markets (see Arnould and DeBrock 1986; Morrisey, Sloan, and Valvona 1989). Because of the market focus and the use of large markets, existing methods cannot adequately describe the microcompetitive behavior among hospitals in the local market. With the advent of managed care, however, the importance of local markets is increasing because of the way selective contracting can pit hospitals against one another (Zwanziger, Melnick, and Eyre 1994). As managed care markets mature and hospitals increasingly pay more attention to their immediate neighbors, a new method is called for that is better suited to this changing market context and measures local variations in competition. The relational approach introduced in this article conceptualizes competition as an attribute of a relationship between two hospitals and measures competition at the level of each pair of hospitals, the smallest unit at which competition can be measured. To some, competition is characterized more by the absence rather than presence of any formal or informal relationships (as illustrated by the phrase “arm's-length ties”). Thus, competition as a relationship may sound like a contradiction in terms. Although hidden and not directly observable, competition “exists” as negative influence that competitors exert on one another, and it can be measured by using observable indicators such as price or patient flow. Niche overlap theory in organizational analysis provides a theoretical framework for constructing the relational measure of competition. Because all organizations must rely on their environment for critical resources to sustain themselves (Scott 1998), they need to compete for the resources to survive and thrive under the usual conditions of resource scarcity and mutual exclusion (Hannan and Freeman 1989). The theory states that two organizations compete to the extent that they rely on the same resources and that the amount of overlap in resource niches between two hospitals is directly proportional to the amount of competition between them (Baum and Haveman 1997). More formally, then, the relational approach consists of measuring competition between two hospitals using the extent of overlap in their use of common resources. The relational approach can enrich the study of competition on many different levels of analysis. First, it can be used to identify the strongest competitor. This allows researchers to model the effect of the strongest competitor in many areas of health services research. It is not yet well known how important the strongest competitor is in explaining various hospital behaviors. However, there is no denying that the strongest competitor is the most salient part of a hospital's environment, and as such, its market behavior must be closely monitored and taken into account in some way or another. Its importance may vary depending on the market context; in more locally oriented markets such as those in rural areas, the strongest competitor may assume much more importance than in large and diffuse markets. On the other hand, hospitals in markets dominated by fee-for-service patients may find the strongest competitor less constraining than in those dominated by managed care in which HMOs and PPOs can play hospitals against their strongest competitors to obtain deeper discounts. One can thus imagine that the strongest competitor may gain more significance as managed care markets mature. Not only does the relational method allow one to identify the strongest competitor, but it also allows one to estimate the strength of competition received from it. In fact, the relational approach can be used to obtain a complete ranked list of competitors by their strength of competition. One can measure how much competitive pressure a hospital receives from its local market competitors such as the first two, three, five, or ten strongest competitors. Furthermore, the sum of competitive pressures from all hospitals can be an indicator of the total competitive pressure a hospital is under. Pair-wise competition can be used to detect local market structures and to delineate larger groups such as markets or organizational populations (see Van de Ven and Ferry 1980). Using the relational measures, Sohn (1996) detected different structures such as clique, center-periphery, enclave, and diffuse structures formed by a focal hospital and its ten strongest competitors. Because the clique in which all hospitals compete intensely with all others would be a much harsher environment than the other three structures, one would hypothesize that competition has the strongest effect on hospitals in a clique. An enclave in which the focal hospital is not competing with any others in the group but all the others compete intensely with one another would be a market structure that will accord monopolistic benefits to the focal hospital even though it is surrounded by others in such a way that a casual observer finds it involved in the heat of competition. These three do not exhaust the range of possibilities by any means. However, they illustrate how the relational approach provides opportunities to researchers in measuring competition on different units of observations and how it can be used to obtain new indicators of competition that may bring additional light to what is already known about the functioning of health care markets. In addition, the relational approach can be used effectively in analyzing the increasingly complicated health care markets in which many hospitals join larger units such as health systems, networks, and alliances. In such an environment, a method focused solely on hospitals may not be attractive enough. Even though this article considers competition only among hospitals, the method can be applied to a more diverse group of providers if appropriate mechanism and indicators of competition can be specified and data are found.1

To contribute to the debate as to whether strategic change helps or harms organizations by empirically examining how strategic change influences performance change in urban hospitals.AHA Annual Survey (1994 and 1996), Health Care Financing Administration's Medicare Cost Reports (1994 and 1996) and Medicare HMO Files (1994), U.S. Bureau of the Census' County Business Patterns Files (1994), and Area Resources File (1994).This work employed a longitudinal approach using a panel design to study the effect of environmental and organizational characteristics on urban hospital strategic behavior and performance. A path analytic model was used to examine the simultaneous effects of environmental and organizational characteristics (1994) on strategic behavior (change in strategies to enhance HMO business and change in strategies to control costs 1994-96), as well as the effects of all of these variables on change in urban hospital performance (change in market share, change in operational efficiency, change in financial performance 1994-96).(1) Environmental context exerts a greater influence on urban hospitals' HMO business enhancement strategies, whereas organizational characteristics have more influence on cost-control strategies. (2) Between the two strategies, HMO business enhancement and cost control, strategic change to enhance business with HMOs is much more complex. (3) Strategic change observed across the 1994 to 1996 time period can be either helpful or harmful to urban hospitals. A strategic change that contributes positively to one type of performance can negatively impact the other.Although differences of opinion persist in the strategic change debate, results of this study indicate that strategic change can be helpful or harmful to urban hospitals, and its consequences are far more complex than previously thought. Strategic rationality has its own limitations and cannot always be relied on to yield expected results. Hospital strategic changes require coordination to achieve greater performance results.

OBJECTIVE: Measuring competition is increasingly important for analysis of health care markets and policies. Measurement of competition in health care is made complex by the breadth of potential issues under study, by the lack of necessary data, and by rapid changes in health care financing and delivery. This study reviews key issues in the measurement of competition and is designed to familiarize researchers and policymakers interested in competition measurement, but not steeped in its practice, with key concepts, data sources, and ways of adapting measures to fit ongoing changes in health care markets. PRINCIPAL FINDINGS: Attention to several key issues will strengthen measurement. Important components of successful measurement are: careful identification of the products and market areas for study; selection of Herfindahl-Hirschman or other indices to fit the issues being considered; consideration of econometric problems, like endogeneity, with common measures; and attention to the ways that current marketplace changes, like growth in managed care, affect the performance of classic measures. Data needed for constructing measures are also frequently scarce, insufficient, or both. Measurement could be improved with access to better data.

As health policy emphasizes the use of private sector mechanisms to pursue public sector goals, health services research needs to develop stronger conceptual frameworks for the interpretation of empirical studies of health care markets and organizations. Organizational relationships should not be interpreted exclusively in terms of competition among providers of similar services but also in terms of relationships among providers of substitute and complementary services and in terms of upstream suppliers and downstream distributors. This article illustrates the potential applicability of transactions cost economics, agency theory, and organizational economics more broadly to horizontal and vertical markets in health care. Examples are derived from organizational integration between physicians and hospitals and organizational conversions from nonprofit to for-profit ownership.

OBJECTIVES: To review the availability of data sources to study health plan competition in the United States. DATA SOURCES: The literature on health plan competition was reviewed. Possible data sources to study health plan competition were evaluated. Experts in the field of health plan competition were contacted about their knowledge of existing data sources. Principal Findings. There is much more quantitative data available on HMO plans than on other types of health plans that are growing in popularity, such as PPOs. A key source for health plan data, state health insurance filings, lacks information on beneficiaries in non-HMO plans. Data on health plan quality is growing. In addition, case studies of particular markets is providing useful qualitative information on the dynamics of the health plan industry. CONCLUSIONS: The fragmentation of the health care market and the hesitancy of governments and private organizations to provide detailed information across markets and providers creates serious obstacles to the study of health plan competition.

OBJECTIVE: To examine the financial, market, and organizational determinants of hospital diversification into subacute inpatient care by acute care hospitals in order to guide hospital managers in undertaking such diversification efforts. STUDY SETTING: All nongovernment, general, acute care, community hospitals that were operating during the years 1985 through 1991 (3,986 hospitals in total). DATA SOURCES: Cross-sectional, time-series data were drawn from the American Hospital Association's (AHA) Annual Survey of Hospitals, the Health Care Financing Administration's (HCFA) Medicare Cost Reports, a latitude and longitude listing for all community hospital addresses, and the Area Resource File (ARF) published in 1992, which provides county level environmental variables. STUDY DESIGN: The study is longitudinal, enabling the specification of temporal patterns in conversion, causal inferences, and the treatment of right-censoring problems. The unit of analysis is the individual hospital. KEY FINDINGS: Significant differences were found in the average level of subacute care offered by investor-owned versus tax-exempt hospitals. After controlling for selection bias, financial performance, risk, size, occupancy, and other variables, IO hospitals offered 31.3 percent less subacute care than did NFP hospitals. Financial performance and risk are predictors of IO hospitals' diversification into subacute care, but not of NFP hospitals' activities in this market. Resource availability appears to expedite expansion into subacute care for both types of hospitals. CONCLUSIONS: Investment criteria and strategy differ between investor-owned and tax-exempt hospitals.

OBJECTIVE: To examine the response of rural hospitals to various market and organizational signals by determining the factors that influence whether or not they establish a provider-based rural health clinic (RHC) (a joint Medicare/Medicaid program). DATA SOURCES/STUDY SETTING: Several secondary sources for 1989-1995: the AHA Annual Survey, the PPS Minimum Data Set and a list of RHCs from HCFA, the Area Resource File, and professional associations. The analysis includes all general medical/surgical rural hospitals operating in the United States during the study period. STUDY DESIGN: A longitudinal design and pooled cross-sectional data were used, with the rural hospital as the unit of analysis. Key variables were examined as sets and include measures of competitive pressures (e.g., hospital market share), physician resources, nurse practitioner/physician assistant (NP/PA) practice regulation, hospital performance pressures (e.g., operating margin), innovativeness, and institutional pressure (i.e., the cumulative force of adoption). PRINCIPAL FINDINGS: Adoption of provider-based RHCs by rural hospitals appears to be motivated less as an adaptive response to observable economic or internal organizational signals than as a reaction to bandwagon pressures. CONCLUSIONS: Rural hospitals with limited resources may resort to imitating others because of uncertainty or a limited ability to fully evaluate strategic activities. This can result in actions or behaviors that are not consistent with policy objectives and the perceived need for policy changes. Such activity in turn could have a negative effect on some providers and some rural residents.

OBJECTIVE: To examine the conceptual bases for the conflicting views of excess capacity in healthcare markets and their application in the context of today's turbulent environment. STUDY SETTING: The policy and research literature of the past three decades. STUDY DESIGN: The theoretical perspectives of alternative economic schools of thought are used to support different policy positions with regard to excess capacity. Changes in these policy positions over time are linked to changes in the economic and political environment of the period. The social values implied by this history are articulated. DATA COLLECTION: Standard library search procedures are used to identify relevant literature. PRINCIPAL FINDINGS: Alternative policy views of excess capacity in healthcare markets rely on differing theoretical foundations. Changes in the context in which policy decisions are made over time affect the dominant theoretical framework and, therefore, the dominant policy view of excess capacity. CONCLUSIONS: In the 1990s, multiple perspectives of optimal capacity still exist. However, our evolving history suggests a set of persistent values that should guide future policy in this area.

To examine the conceptual bases for the conflicting views of excess capacity in healthcare markets and their application in the context of today's turbulent environment.The policy and research literature of the past three decades.The theoretical perspectives of alternative economic schools of thought are used to support different policy positions with regard to excess capacity. Changes in these policy positions over time are linked to changes in the economic and political environment of the period. The social values implied by this history are articulated.Standard library search procedures are used to identify relevant literature.Alternative policy views of excess capacity in healthcare markets rely on differing theoretical foundations. Changes in the context in which policy decisions are made over time affect the dominant theoretical framework and, therefore, the dominant policy view of excess capacity.In the 1990s, multiple perspectives of optimal capacity still exist. However, our evolving history suggests a set of persistent values that should guide future policy in this area.

OBJECTIVE: To discuss the implications of the rapid transformation of the healthcare financing and delivery system for competition, social welfare, and antitrust policy. PRINCIPAL FINDING: Horizontal and vertical consolidations can enhance efficiency but can also be anticompetitive in markets characterized by entry barriers. RECOMMENDATION: Active enforcement of the antitrust laws is essential to ensure that competition in healthcare markets will lead to procompetitive, rather than anticompetitive effects. However, healthcare antitrust enforcement policy must be flexible enough to allow efficient new forms of organization and practice to emerge.

OBJECTIVE: To examine the theoretical possibility of monopsony behavior under managed care insurance. STUDY DESIGN: Use of microeconomic theory to examine how managed care plans with market power would be expected to behave, and effects of that behavior on consumer and supplier welfare. PRINCIPAL FINDINGS: The article shows that, under managed care monopsony, the welfare of consumers may be increased but overall economic welfare will necessarily be reduced. It offers a test for whether the lower prices paid by managed care buyers with larger market share represent welfare-reducing monopsony or a welfare-increasing movement away from provider monopoly. The test says that, if the quantity of inputs (supplied under conditions of increasing long-run marginal cost) declines, monopsony is present. The article also argues that the translation of lower provider prices into lower premiums is consistent with welfare-reducing monopsony by nonprofit health plans. In contrast, for-profit health plans that obtain monopsony may reduce the welfare of consumers as well as that of input suppliers. These theoretical conclusions are shown to be consistent with recent empirical research indicating a negative relationship between buyer market power and cost per enrollee. CONCLUSIONS: Traditional antitrust policy has not been able to deal well with monopsony. The article concludes that health plans that use their market power to reduce medical spending may harm the well-being both of specialized medical workers and of consumers of medical care. Antitrust policy may need to be modified to deal with this situation.

OBJECTIVE: Antitrust enforcement can improve the performance of large, vertically integrated physician-hospital organizations (PHOs). Objective: To examine the recent court decisions in the Blue Cross and Blue Shield United of Wisconsin v. Marshfield Clinic antitrust case to understand better the benefits and costs of vertical integration in healthcare. SUMMARY AND CONCLUSIONS: Vertical integration in the Marshfield Clinic may have had the benefits of reducing transactions and uncertainty costs while improving the coordination between ambulatory and inpatient visits, but at the cost of Marshfield Clinic's monopolizing of physician services and foreclosing of HMO entry in northwest Wisconsin. The denial of hospital staff privileges to non-Marshfield Clinic physicians combined with certificate-of-need regulations impeded physician entry and solidified Marshfield Clinic's monopoly position. Enforcement efforts of recent antitrust guidelines by the U.S. Department of Justice and the Federal Trade Commission will need to address carefully the benefits and costs of vertically integrated systems.

OBJECTIVE: To examine the effect of case mix-adjusted reimbursement policy and market factors on nursing home performance. DATA SOURCES AND STUDY SETTING: Data from Medicaid certification inspection surveys, Medicaid cost reports, and the Kentucky State Center for Health Statistics for the years 1989 and 1991, to examine changes in nursing home performance stemming from the adoption of case mix-adjusted reimbursement in 1990. STUDY DESIGN: In addition to cross-sectional regressions, a first-difference approach to fixed-effects regression analyses was employed to control for facility differences that were essentially fixed during the survey years and to estimate the effects of time-varying predictors on changes in facility expenditures, efficiency, and profitability. PRINCIPAL FINDINGS: Facilities that increased the proportion of Medicaid residents and eliminated excess capacity experienced higher profitability gains during the beginning phase of case-mix reimbursement. Having a heavy-care resident population was positively related to expenditures prior to reimbursement reform, and it was negatively related to expenditures after the case-mix reimbursement policy was introduced. While facility-level changes in case mix had no reliable influence on costs or profits, nursing homes showing an increased prevalence of poor-quality nursing practices exhibited increases in efficiency and profitability. At the market level, reductions in excess or empty nursing home beds were accompanied by a significant growth in home health services. Moreover, nursing homes located in markets with expanding home health services exhibited higher increases in costs per case-mix unit. CONCLUSIONS: Characteristics of the reimbursement system appear to reward a cost minimization orientation with potentially detrimental effects on quality of care. These effects, exacerbated by a supply-constrained market, may be mitigated by policies that encourage the expansion of home health service availability.

An overview of (1) key trends shaping the healthcare environment and market; (2) ways in which these environmental trends are reflected in changes in the organization and delivery of healthcare; (3) the implications of environmental and organizational changes for older Americans; and (4) the research issues that can be addressed using organizational and behavioral theories. This introductory article sets the healthcare scene for the articles that follow.

OBJECTIVE: To examine the contextual attributes that influence nursing home TQM adoption, as informed by resource dependence and institutional theories. DATA SOURCES: A survey of licensed nursing home administrators in the Commonwealth of Pennsylvania during 1994-1995, the Medicare and Medicaid Annual Certification Survey (MMACS) data file, and the Area Resource File (ARF). STUDY DESIGN: Because the dependent variable (TQM adoption vs. non-adoption) is dichotomous, the model was estimated using logistic regression. DATA COLLECTION: Of the 615 facilities that were mailed surveys, 241 (39.2%) returned completed questionnaires. No significant differences were observed between respondents and nonrespondents in size, for-profit status, system membership, registered nurse staffing, cited licensure deficiencies, Medicare census, or Medicaid census. PRINCIPAL FINDINGS: Perceived competition, Medicare's share of total hospital discharges in the market, and facility Medicare census were significant predictors of TQM adoption. CONCLUSIONS: Our results provide limited support for the association between some rational adaptive and institutional factors and TQM adoption in nursing homes. Perceived competition and the influence of the Medicare program both at the facility and the market level are associated with TQM adoption. However, other factors associated with TQM adoption in other industries, such as size, are not associated with TQM adoption in the nursing homes in this study.