Competition under Fixed Prices: Effects on Patient Selection and Service Strategies by Hemodialysis Providers

Dialysis services for patients with end-stage renal disease (ESRD) are delivered by predominantly private providers competing in local markets. Because prices are fixed by Medicare, providers can only compete on product quality. Using 1990 data and multiple competition measures, this study examines how competition under fixed prices influences hemodialysis providers' strategies for patient selection and service levels. It finds that provider strategies vary with competition, but competitive effects are not dominant and they differ by provider type. Providers with greater competition accept more costly patients, suggesting that competition may be contributing to changes in the Medicare ESRD population to an older and sicker patient mix. Only hospital-based facilities use richer staffing in more competitive markets. For-profit, free-standing facilities in all markets have lean staffing. Rural facilities have higher staff productivity than facilities in concentrated urban markets.