The effect of network arrangements on hospital pricing behavior

The Department of Justice (DOJ) and the Federal Trade Commission (FTC) have taken a recent interest in collaborations among hospitals that do not entail common ownership, despite the lack of scientific evidence regarding effects of these hospital “networks” on market competition. This paper explores the relationship between hospital networks and pricing behavior in California during a period of dynamic increase in hospital network activity there. Using Herfindahl-Hirschman Indexes (HHI) market definitions based on patient origin and accounting for network relationships, we find a positive network effect on hospital pricing. However, this result appears to be generated primarily by system-owned hospitals that form networks to provide particular services jointly.