A hip replacement in Maine can run north of $44,000. Down the coast in Boston, it’s a different story. There, the same procedure costs just more than $16,000, a fraction of the price. Knee surgeries follow the same pattern. They cost up to $13,500 in Maine, but as little as $3,900 in Boston.
One of the reasons for these massive price discrepancies? There’s a lot more competition among hospitals in Boston.
The healthcare market runs according to the same principles as any other market. Competition among sellers, in this case, healthcare providers, for consumers’ business yields lower costs and higher quality.
An analysis published by the National Bureau of Economic Research found that hospitals in areas with only one hospital charged 12.5 percent more than areas with four or more. Places with only two hospitals had 7.6 percent higher prices than those with four or more.
A 2015 study published in The Review of Economic Studies illustrated how competition can improve care. The authors found that adding a rival hospital improved the quality of management and boosted survival rates from emergency heart attacks by 9.7 percent.
One way for policymakers to boost competition among healthcare providers is to get rid of regulations that favor incumbents, like certificate-of-need laws. These laws require providers hoping to build new healthcare facilities to prove communities “need” them.
Incumbent hospitals and clinics have a strong incentive to lobby against those new facilities. Hospitals are often among the largest employers in a given community. So, they’re successful more often than not at bending the politicians evaluating that “need” to their will.
Fostering competition should be policymakers’ number one health policy objective. It’s an often free way to reduce health costs and improve care.