Review of Industrial Organization (2005) 26: 61–87 © Springer 2005
Do Different Measures of Hospital Competition
Matter in Empirical Investigations of Hospital
HERBERT S. WONG
, CHUNLIU ZHAN
and RYAN MUTTER
Agency for Healthcare Research and Quality, 540 Gaither Road, Rockville, MD 20850
University of Maryland, Baltimore County
Abstract. Considerable controversy exists about the appropriate way hospital competition
should be measured and whether ﬁndings are accurate if certain methods are employed.
Data from the Healthcare Cost and Utilization Project (HCUP), the American Hospital
Association (AHA), and other supplemental data sources are used to create and evalu-
ate hospital competition measures. Correlation coefﬁcients of these measures are assessed.
Moreover, each measure is independently included as an explanatory variable in other-
wise identical hospital cost function regressions. Their corresponding parameter estimates
are then compared. Most measures are highly correlated. Inferences about the effect of
competition on hospital cost remain the same when alternative hospital competition mea-
sures are employed. We caution researchers against using this ﬁnding to arbitrarily select
a competition measure when the magnitude of the estimates is important.
Key words: hospital competition measures, hospital markets.
JEL Classiﬁcations: I11, L19.
An extensive empirical literature exists that examines the effects of hospi-
tal competition on the cost, access, and quality of hospital services. While
these studies typically ﬁnd statistically signiﬁcant effects, there is consider-
able controversy about the appropriate way hospital competition should be
measured (Dranove and White, 1994) and whether ﬁndings are accurate if
certain methods are employed. Differences in the measurement of hospital
This paper does not represent the policy of either the Agency for Healthcare
Research and Quality (AHRQ) or the U.S. Department of Health and Human Services
(DHHS). The views expressed herein are those of the authors and no ofﬁcial endorse-
ment by AHRQ or DHHS is intended or should be inferred.
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