How Regulators Can Increase Price Competition in Health Care

California is losing ground in the battle against rising hospital costs. Once a successful model for controlling health care spending, the state is struggling to maintain price competition in its health care markets. According to researchers at the University of Southern California and the University of Illinois at Chicago, state regulatory decisions and hospital consolidation appear largely to blame. The scholars—Glenn Melnick, Katya Fonkych, and Jack Zwanziger—find that the regulation of access to emergency hospital services and the increase in multihospital systems, in which numerous hospitals are controlled by a central organization, have eroded the necessary conditions for price competition. These developments, explain Melnick and his coauthors, have made it more difficult for health plans to negotiate lower prices for their members and to exclude higher-cost hospitals from their networks. As the birthplace of one of the earliest prepaid health plans in…

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