Competition and the Cost of Hospital Care

To the Editor.— The widely reported finding that hospital costs were "substantially higher" in "more competitive markets" discussed in a June 19, 1987,JAMAarticle by Robinson and Luft¹is seriously flawed and flatly erroneous for reasons incisively pointed out by a physician nearly a decade ago. Robinson and Luft's basic error is fundamental: in effect, they turn competitive analysis of health care on its head by labeling as "competitive" what has long been known to make hospital marketsnoncompetitive under elementary economic theory—a virtual absence of price competition. Robinson and Luft conclude that "the identification of the important cost-increasing effect ofnonpricecompetition among hospitals suggests that a degree of caution be exercised in predicting costreducing effects of recent 'marketoriented' policy initiatives." The exact opposite is true. It was the very preponderance of nonprice competition in health care markets that led the principal architects of marketoriented policies