Is hospital competition socially wasteful?

We study the consequences of hospital competition for Medicare beneficiarie s' heart attack care from 1985 to 1994. We examine how relatively exogenous determinants of hospital choice such as travel distances influence the com petitiveness of hospital markets, and how hospital competition interacts wi th the influence of managed-care organizations to affect the key determinan ts of social welfare-expenditures on treatment and patient health outcomes. In the 1980s the welfare effects of competition were ambiguous; but in the 1990s competition unambiguously improves social welfare. Increasing HMO en rollment over the sample period partially explains the dramatic change in t he impact of hospital competition.