1. Academy Health ARM 2008 Is Regionalization or Competition Better for Patient Welfare? Vivian Ho, PhD James A. Baker III Institute for Public Policy & Dept. of Economics, Rice University Dept. of Medicine, Baylor College of Medicine Marah Short, MA James A. Baker III Institute for Public Policy, Rice University June 10, 2008

2. Funding National Institute of Health: National Cancer Institute grant entitled Regionalizing Cancer Surgery (1 R21 CA118452-01A1) National Institute of Health: National Cancer Institute grant entitled Regionalizing Cancer Surgery (1 R21 CA118452-01A1)

3. Research Objectives To predict the changes in consumer surplus resulting from regionalizing cancer surgery by referring patients to high volume hospitals To predict the changes in consumer surplus resulting from regionalizing cancer surgery by referring patients to high volume hospitals

4. Empirical Framework Mkt. Concentration Mortality Cost Price Patient Welfare

5. Study Design Estimate effect of market concentration on mortality, cost, & price Estimate effect of market concentration on mortality, cost, & price Estimate effect of procedure volume on mortality & costs Estimate effect of procedure volume on mortality & costs Use volume-mortality estimates to assign a value to the lives gained resulting from regionalization Use volume-mortality estimates to assign a value to the lives gained resulting from regionalization Use concentration effects to predict regionalization costs Use concentration effects to predict regionalization costs Use benefits & costs to estimate consumer surplus Use benefits & costs to estimate consumer surplus

6. Data Patients who underwent surgical resection for pancreatic or colon cancer between 2001 & 2005 Patients who underwent surgical resection for pancreatic or colon cancer between 2001 & 2005 Hospital discharge abstracts in Florida, New Jersey, New York & California Hospital discharge abstracts in Florida, New Jersey, New York & California Medstat MarketScan insurance claims Medstat MarketScan insurance claims AHA annual surveys AHA annual surveys Medicare cost reports Medicare cost reports

7. Dependent Variables Inpatient Mortality Inpatient Mortality Cost Cost Charges multiplied by CCRs Charges multiplied by CCRs Price Price Payment to hospital for entire admission Payment to hospital for entire admission Patient co-pay & insurance co. payment Patient co-pay & insurance co. payment

8. Explanatory Variables: Mortality, Cost, & Price Equations Herfindahl Index Herfindahl Index Hospital Characteristics Hospital Characteristics Annual procedure volume Annual procedure volume Ownership Ownership Teaching Teaching Bedsize Bedsize Hospital-level FE Hospital-level FE Year Year Patient Characteristics Age, Gender, Race Urgent/Emergent Elixhauser comorbidity index Cancer stage Procedure specific LOS (mortality eqn. only)

9. Effect of Market Concentration & Procedure Volume on Mortality PancreaticoduodenectomyColectomy Herfindahl-2.345(0.425) 4.954 *** (0.002) Volume -0.042 *** (0.000) -0.011 *** (0.000) P-values are in parentheses. * Statistically significant at 10% level; ** 5% level; *** 1% level.

10. Effect of Market Concentration & Procedure Volume on Costs PancreaticoduodenectomyColectomy Herfindahl5.089(0.370)-1.218(0.718) Volume -0.050 * (0.085)-0.001(0.895) P-values are in parentheses. * Statistically significant at 10% level; ** 5% level; *** 1% level.

11. Effect of Market Concentration on Log(Price) PancreaticoduodenectomyColectomy Herfindahl4.523(0.342) 0.763 ** (0.041) P-values are in parentheses. * Statistically significant at 10% level; ** 5% level; *** 1% level.

12. Principal Results PancreaticoduodenectomyColectomy Higher mkt. concentration MortalityPrice Higher procedure volume MortalityCostsMortality

13. Principal Results Higher procedure volume is associated with lower mortality for both procedures and lower costs for pancreaticoduodenectomy. Higher procedure volume is associated with lower mortality for both procedures and lower costs for pancreaticoduodenectomy. Higher concentration is associated with higher mortality and price for colectomy. Higher concentration is associated with higher mortality and price for colectomy.

14. Next Steps Use volume-mortality estimates to assign a value to the lives gained resulting from regionalization Use volume-mortality estimates to assign a value to the lives gained resulting from regionalization Use concentration effects to predict regionalization costs Use concentration effects to predict regionalization costs Use benefits & costs to estimate consumer surplus Use benefits & costs to estimate consumer surplus

15. Policy Implications Recommendations to save lives by concentrating surgery at high-volume hospital should be tempered by consumer surplus losses resulting from reductions in hospital market competition. Recommendations to save lives by concentrating surgery at high-volume hospital should be tempered by consumer surplus losses resulting from reductions in hospital market competition.