Community control and pricing patterns of nonprofit hospitals: An antitrust analysis

Traditional control of nonprofit hospitals by the communities they serve ha s been offered as justification for restraining antitrust enforcement of me rgers that involve nonprofit hospitals. The community is arguably a constra int on a nonprofit's inclination to exercise market power in the form of hi gher prices; however, community control is likely to be attenuated for hosp itals that through merger or acquisition become members of hospital systems -particularly those that operate on a regional or multiregional basis. We r eport findings from a study in which we examined empirically the relationsh ip between market concentration and pricing patterns for three types of non profit hospitals that are distinguishable based on degree of community cont rol: an independent hospital, a member of a local hospital system, and a me mber of a nonlocal hospital system. Study results indicated that when condi tions existed to create a more concentrated market, (1) all three types of nonprofit hospitals exercised market power in the form of higher prices, an d (2) hospitals that were members of nonlocal systems were more aggressive in exercising market power than were either independent or local system hos pitals. The results have important implications for antitrust enforcement p olicy.