Designing Hospital Antitrust Policy to Promote Social Welfare

Applying principles of merger evaluation to the health care industry in general, and to hospital markets in particular, poses several unique challenges. Definition of relevant geographic markets and assessment of the consequences of changes in competition for patient and social welfare are complicated by asymmetric information and moral hazard due to health insurance. We suggest a new empirical approach to assessing the impact of hospital competition which addresses the shortcomings of existing methods. We then summarize our main results on the welfare consequences of competition. We conclude with an illustration of how our methods can be used to assess the welfare implications of specific hospital mergers, and with some implications of our findings for antitrust policy. Note: An earlier version of this article was announced as Stanford Law School, John M. Olin Program in Law and Economics Working Paper No. 172, January 1999. The working paper can be downloaded from: http://papers.ssrn.com/paper.taf?abstract_id=147382