How Well Do Travel Cost Models Measure Competition Among Hospitals?
36 Pages Posted: 18 Sep 2011 Last revised: 12 Dec 2012
Date Written: March 10, 2012
Health plans create competition among hospitals by threatening to “steer” patients to preferred facilities. Mergers can reduce this competition and economists have begun using travel cost demand models to predict their effects. In this paper, we document an anomaly in estimation: for any plausible estimate of the opportunity cost of time, the price of hospital service is several orders of magnitude larger than the estimated value that patients place on the service. This anomaly raises questions about how well travel cost models measure demand for medical care, competition among hospitals, and the increase in bargaining power created by merger.
Keywords: hospital competition, hospital merger, patient choice, demand estimation, travel cost estimation, bargaining, merger, antitrust
JEL Classification: C25, C78, L41
Suggested Citation: Suggested Citation