Page 114 - Effective healthcare cost containment policies Using the Netherlands as a case study - Niek W. Stadhouders

Chapter 5
One factor that may influence market volatility is provider size. Furthermore, the level of concentration in the hospital sector increased during the period of our study (Schut et al., 2013). However, literature examining the effect of provider concentration on prices and costs finds mixed results (Gaynor et al., 2015; Gaynor and Vogt, 2000; Mosca et al., 2007; Schneider et al., 2008). On the one hand, providers may have more difficulties reallocating budgets between large providers due to provider market power and limited alternatives. On the other hand, large providers may have more possibilities to accommodate changes in market share in absolute terms, i.e. a reallocation of one million euro is easier to accommodate for large providers than for small providers. If the former effect dominates, it may provide an explanation for low volatility found in the hospital sector. However, if the latter effect dominates, the hospital market would be expected to have inherently higher volatility, which would imply low volatility in the hospital sector may not be explained by high concentration.
Provider size and capital intensity
Secondly, sectors with high capital intensity may have lower volatility, because high fixed costs limit the capacity of providers to cope with large negative income shocks. We define capital intensity as interest payments, rents and capital depreciation (as percentage of total revenue). We estimate the effect of provider size and capital intensity on the absolute change in market share over all sectors:
(5) Where is the market share of provider in year ; is capital intensity and are year dummies. The error term is corrected for panel clusters. All sectors are included in this analysis. Quadratic effects are estimated for provider size to allow nonlinear effect. For capital intensity, a negative relation ( ) indicates that this limits the scope of budget
reallocations.
Table 5.5 displays the results of the regression. Both market share and market share
squared are positive and significantly different from zero. This indicates that the effect of provider size is positive and increasing: larger providers experience a disproportionally larger volatility. However, this effect is small: a 1% increase in market share is associated with a 0.035% increase in volatility for the smallest 50% of providers, 0.036% for the 75th size percentile and 0.039% for the 90th size percentile. These results indicate that higher provider market concentration is associated with more market share reallocations. While small providers may experience more dynamism in relative terms, the absolute effect of budget changes for large providers dominates the total volatility in the market. Based on this, we would expect more market volatility in more concentrated markets. However, despite the hospital sector being more concentrated, reallocations are relatively low. This
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