Excess Capacity, Hospital Costs, and the Effects of Market Structure

How does managed care activity and hospital competition influence demand for hospital services, levels of available excess capacity, and hospital- and market-level responses to excess capacity? Researchers measured daily hospital utilization in California and Florida, examining day-to-day and seasonal fluctuations in hospital occupancy and exploring systematic variation in utilization patterns across different kinds of hospitals. In addition, they studied ways that managed care activity and hospital competition influence demand for hospital services, levels of available excess capacity, and hospital- and market-level responses to excess capacity. In particular, the investigators: 1) provided new evidence about the daily and seasonal fluctuations in demand that face hospitals and units within hospitals; 2) used the new information to examine how these fluctuations are related to hospital characteristics and to reassess the extent of excess capacity; 3) re-evaluated the costs of excess capacity using the improved measures; 4) examined the relationship between market characteristics and hospital capacity, paying particular attention to the effects of hospital competition and HMO activity; and 5) characterized the extent to which hospitals have responded to the presence of excess capacity and the ways in which market structure is associated with the responses. The objective of this study was to provide policymakers and health managers and planners with information necessary to inform their decisions about potential hospital mergers and closures.