Competition and Market Failure in the Hospital Industry: A Review of the Evidence

The task of this paper is to synthesize certain of the published research findings in health economics pertaining to hospitals.In particular the theme of the survey centers around the use of concepts of market efficiency common to economists in the field of industrial organization to explain performance of hospital markets.A substantial amount of research has been conducted in recent years related to various aspects of performance of producers and consumers of health care services.These studies have taken a number of directions.Recent actions by regulators and third party payers that provide more incentive for efficient health care delivery systems have generated interest in the nature, causes, and remedies of market failure in this industry.Therefore, the thrust of this paper places emphasis on the delivery of health care services emphasizing hopsital services, within a market context and attempts to analyze the existence and extent of market failure within health care markets.The general conclusions of the paper are that the cost structure of hospitals does not warrant there being monopoly producers of hospital services.Therefore, market failure is the result of externalities in the form of moral hazard, most of which is generated through the organization and operation of risk shifting to third party payers.Additional market failure is generated by a variety of attempts by governments to regulate the health care sector.The paper concludes with a discussion of changes that are taking place in the risk sharing formulas that define the methods through which health care services are purchased, the effects these changes are having on market efficiency, and, finally, with a description of empty boxes for which future research is needed.3).Stigler, and tc seme estent Scherer stres; the weaknesses in placing too much reliability en market structure as a predictor of economic performance Instead, those authors hold that one should place greater reliance en market behavici or conduct, the latter being generally defined to include policies