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Thursday, July 31st, 2008

Hospitals, Competition, and Life Sciences

The Indianapolis Star ran an interesting story Sunday on the explosion in for profit hospital facilities [dead link] owned by the big local hospital chains. This raises questions in my mind. There may have been some research on the topic, so if anyone has pointers, I’d appreciate it.

Regulation of hospital facilities varies by state. Some states, such as Kentucky, require a “certificate of public necessity” from the state before new or expanded hospitals can be built. This sort of rations facilities like cab medallions. Others, such as Indiana, seem to take a laissez-faire approach, letting hospitals build where ever they want. The question is: which of these is better from a consumer standpoint? And beyond that, does one model or another help a region build a life science business.

Typically I would just reflexively say that more free markets are generally better for consumers. But in the case of medical care, with its exceptionally complex collection of players including patients, doctors, hospitals and other facilities, insurance companies, and employers, figuring out who the customer actually is and how he is affected can be difficult. It might be obvious that the patient is the customer, but if the patient isn’t footing the bill, he certainly doesn’t have the incentives of a normal consumer.

Then there is the question I raised a while back on whether the accessibility of health care in a community is a sign of good health or poor health. It could mean people have access to better care. It could mean there are more sick and unhealthy people who need more facilities.

The one that intrigues me is the matter of the local life sciences industry. Hospitals, particularly academically affiliated ones, are often the linchpin of a local life sciences effort. Does a lightly regulated market make it easier the research/business community or harder? I don’t have the leisure to construct a study on this, and I’m sure it would be complex to model, but this might be something to look into.

I can see a couple of hypotheses to test. One is that more competition between rival hospitals leads to more rapid innovation and deployment of newer technologies first as each tries to outdo the other. The other hypothesis is that new facilities in the burbs let some hospitals skim off the highly profitable work that funds the research and specialized care at other facilities.

I was thinking about one example in particular. St. Vincent’s Hospital recently opened their own children’s hospital facility (Peyton Manning Children’s Hospital) to compete with Riley Hospital. What the impact on Riley Hospital of this? I guess time will tell.

Interestingly, the local hospitals in Indianapolis don’t appear to score that highly on prominent surveys such as the US News best hospitals report. Riley Hospital doesn’t make the top 30 chilren’s hospitals. By contrast, four children’s hospitals in Ohio are on the list, led by Cincinnati Children’s Hospital at #3 in the country. The other Clarian hospitals scored ok in some specialties, but nothing to write home about. They didn’t crack the top 10 on anything, peaking at #13 for gastrointestinal disorders. No other local hospitals are even rated, which, to be fair, isn’t surprising since you basically have to be affiliated with a medical school to make the list.

How does hospital regulation schemes help or hurt health care and/or life sciences efforts? Discussion welcome.

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Topics: Economic Development, Public Policy, Strategic Planning
Cities: Indianapolis

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