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Competition keeps health-care costs low, Stanford study finds

The term market competition usually sparks a mental image of business suits and ties, not white coats and stethoscopes. Yet even the health-care system plays by the rules of the economic market place.

A new study, conducted by Stanford researchers Laurence Baker, PhD; M. Kate Bundorf, PhD; and colleagues, provides important evidence that less competitive health-care markets are more likely to charge higher prices for office visits. The article was published today in The Journal of the American Medical Association.

There's a push through the private sector and through Medicare to encourage the formation of larger practices, which could improve the efficiency of the health-care system, said Bundorf.  The researchers sought to understand what effect these larger practices have on health-care spending.

To make the comparisons, the researchers used a database to establish the prices paid by PPOs for the most commonly billed office visits within 10 physician specialties. Next, they adapted a standard economic competition measure to calculate physician practice competition for different U.S. regions.

As I wrote in a release today:

Studying a measure that averaged prices across multiple types of office visits, in their most conservative model, being in the top 10 percent of areas with the least competition was associated with 3.5 to 5.4 percent higher mean price. The researchers point out that in 2011, privately insured individuals in the United States spent nearly $250 billion on physician services. In that context, these small percentage increases could translate to tens of billions of dollars in extra spending.

The study’s findings show the importance of developing policies that will encourage a balance between the quality of care and health-care spending. As Baker explained, "Sometimes it can be tempting to say our goals for the health care system should be only about taking care of patients and doing it as well as possible - we don't want to worry about the economics. But the truth is we do have to worry about the prices because the bill does come even if you wish it wouldn't."

Previously: What’s the going rate? Examining variations in private payments to physicians

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