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Week 3 exercise 3

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Exercise #3:
The dataset provides HerfindahlHirschman Index, and herfindahel index categories, please use the herf_cat
variable and answer the following questions:
Note: “The Herfindahl–Hirschman Index is a commonly accepted measure of market concentration used by antitrust
enforcement agencies and scholars in the field. The HHI is calculated by squaring the market share of each firm
competing in the market and then summing the resulting numbers” (NASI, 2015; pp: 14-16). read more from here:
https://www.urban.org/sites/default/files/publication/50116/2000212-Addressing-Pricing-Power-in-Health-Care-
Markets.pdf
For this exercise you do not need to compute the HHI, but if you have any questions, please do not hesitate to ask
me, but try to learn more about this you will need that to report your findings.
Use the dataset from week1 exercise and then answer the following questions:
1) Compare the following information between hospitals located in high, moderate and low
competitive markets? ( see table 1)
2) What are the main significant differences between hospitals in different markets? (use Anova
test)
Based on the ANOVA-test results, there are significant differences between hospitals in
three different markets in terms of the following hospital characteristics; hospital beds,
system membership, hospital net benefits, available Medicare days, Total hospital
discharge, Medicare duischarge, Medicaid discharge, and Herfindahel index. These
hospital characteristics are statistically significant since their p-values are less than level
of significance (0.05).
On the other hand, there are no significant differences between hospitals in three different
markets in terms of the following characteristics; number of paid employees, number of
non-paid employees, interns and residents, total hospital cost, total hospital revenues, and
available Medicaid days. These hospital characteristics are statistically insignificant since
their p-values are greater than level of significance (0.05).
3) Use the density curves and compare hospitals cost and revenues between three markets.
Based on the density curves, there is a small increase in cost compared to revenues , but it evens out and
stays consistent after that for all the three markets.
3) What is the impact of being in high-competitive market on hospital revenues and cost? Do you
think being in high-competitive market has positive impact on net hospital benefits? What about
the number of Medicare and Medicaid discharge? Do you think hospitals in higher completive
market more likely to accept more Medicare and Medicaid patients? What are the impact of
other variables? Please discuss your findings in 1-2 paragraphs.
(Note: to answer to the last question, please compute the ratio-Medicare-discharge and ratio-
Medicaid-discharge first and then run 2 ttest) high vs. moderate and high vs. low competitive
market), please support your findings with box-plot).
Being in a high competitive market result in relatively lower costs and revenues compared to two other
markets. For instance, hospitals in high competitive markets recorded an average cost of $73,687,086.466
(S.D= 121,326,585.490) and a corresponding average revenue of $77,700,144.817 (S.D=

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