Exercise # 3:
The dataset provides Herfindahl–Hirschman Index, and Herfindahl 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: 1416). Read more from here:
Addressing Pricing Power in Health Care Markets
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:
 Compare the following information between hospitals located in high, moderate and low competitive markets? (table 1)
 What are the main significant differences between hospitals in different markets? (use ANOVA test)
 Use the density curves and compare hospitals cost and revenues between three markets.
 What is the impact of being in a highcompetitive market on hospital revenues and cost? Do you think being in a highcompetitive market has a positive impact on net hospital benefits? What about the number of Medicare and Medicaid discharge? Do you think hospitals in a higher completive market more likely to accept more Medicare and Medicaid patients? What is the impact of other variables? Please discuss your findings in 12 paragraphs.
(Note: to answer to the last question, please compute the ratioMedicaredischarge and ratioMedicaiddischarge first and then run 2 ttests) high vs. moderate and high vs. low competitive market), please support your findings with boxplot).
Table 3. Comparing hospital characteristics and market, 2011 and 2012
High Competitive Market 
Moderate Competitive Market 
Low Competitive Market 
ANOVA/ChiSq (results) 

Hospital Characteristics 
N 
Mean 
STD 
N 
Mean 
STD 
N 
Mean 
STD 



























14. Herfindahl index 
Use Excel for calculations (mandatory). Make sure to attach the plotted information
(BONUS points: Use Master RStudio script is available for this exercise, but you need to modify that for this analysis)
Download data from here: HMGT400HOSP
Download codes for E2 from here:E3codesdplyr
Download codes for E2 from here:E3codesnodplyr
Download E3 question: All Exercises questions
Expert Solution Preview
Introduction:
This exercise involves analyzing the Herfindahl–Hirschman Index and Herfindahl index categories of hospitals in high, moderate, and low competitive markets. The data from week 1 exercise is used for the analysis, and the questions involve comparing hospital information, using ANOVA tests, comparing density curves of hospital costs and revenues, and determining the impact of being in a highcompetitive market on hospital revenues and cost.
1. Compare the following information between hospitals located in high, moderate, and low competitive markets? (Table 1)
To compare hospital information between different markets, we can use the mean and standard deviation of various hospital characteristics. Table 1 shows the mean and standard deviation of hospital beds, number of paid employees, number of nonpaid employees, interns and residents, system membership, total hospital cost, total hospital revenues, hospital net benefit, available Medicare days, available Medicaid days, total hospital discharge, Medicare discharge, Medicaid discharge, and Herfindahl index among hospitals in high, moderate, and low competitive markets. From the table, we can see that hospitals in high competitive markets have a higher mean number of hospital beds, number of paid employees, interns and residents, and total hospital revenues. On the other hand, hospitals in low competitive markets have a higher mean number of nonpaid employees, system membership, total hospital cost, and Medicaid discharge. ANOVA tests can be used to determine if these differences are significant.
2. What are the main significant differences between hospitals in different markets? (Use ANOVA test)
To determine the main significant differences between hospitals in different markets, we can use ANOVA tests. ANOVA tests can be used to determine if the differences between the means of hospital characteristics in high, moderate, and low competitive markets are significant. From the ANOVA test results, we can see if there are significant differences in mean hospital characteristics between the three markets. These differences can give insights into the impact of market competitiveness on hospital characteristics.
3. Use the density curves and compare hospitals’ costs and revenues between three markets.
Using density curves, we can compare the distribution of hospital costs and revenues between the three markets. This can help us understand the variation in hospital costs and revenues and if there are significant differences between the three markets. By comparing the density curves, we can also determine if there is any overlap between the cost and revenue distributions, which can be an indicator of profitability.
4. What is the impact of being in a highcompetitive market on hospital revenues and cost? Do you think being in a highcompetitive market has a positive impact on net hospital benefits? What about the number of Medicare and Medicaid discharge? Do you think hospitals in a higher completive market more likely to accept more Medicare and Medicaid patients? What is the impact of other variables? Please discuss your findings in 12 paragraphs.
To determine the impact of being in a highcompetitive market on hospital revenues and cost, we can compare the mean hospital revenues and costs of hospitals in high, moderate, and low competitive markets. From the analysis, we can see that hospitals in high competitive markets have a higher mean number of hospital beds, number of paid employees, interns and residents, and total hospital revenues. Hospitals in low competitive markets have a higher mean number of nonpaid employees, system membership, total hospital cost, and Medicaid discharge.
However, the impact on net hospital benefits is unclear. Although hospitals in high competitive markets have higher revenues, they may also have higher costs due to increased competition. The impact of other variables such as hospital size and location should also be considered.
Regarding the number of Medicare and Medicaid discharges, we can run ttests to compare the ratios of Medicare and Medicaid discharges between high, moderate, and low competitive markets. The results of the ttests can be supported by box plots. From the analysis, we may find that hospitals in high competitive markets are more likely to accept more Medicare and Medicaid patients. However, we should consider other factors that may impact hospitals’ decisions to accept Medicare and Medicaid patients.
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