Do All Hospital Systems Have Market Power? Association Between Hospital System Types and Cardiac Surgery Prices (original) (raw)
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Hospital prices and market structure in the hospital and insurance industries
Health Economics, Policy and Law, 2010
There has been substantial consolidation among health insurers and hospitals, recently, raising questions about the effects of this consolidation on the exercise of market power. We analyze the relationship between insurer and hospital market concentration and the prices of hospital services. We use a national US dataset containing transaction prices for health care services for over 11 million privately insured Americans. Using three years of panel data, we estimate how insurer and hospital market concentration are related to hospital prices, while controlling for unobserved market effects. We find that increases in insurance market concentration are significantly associated with decreases in hospital prices, whereas increases in hospital concentration are non-significantly associated with increases in prices. A hypothetical merger between two of five equally sized insurers is estimated to decrease hospital prices by 6.7%.
2013
implied, that the data-financial, patient, payer, and physician specific information-provided to this entity, are error-free, or that the use of the data will avoid differences of opinion or interpretation. This analysis was not prepared by PHC4. This analysis was done by Suhui Li and Avi Dor. PHC4, and its agents and staff bear no responsibility or liability for the results of the analysis, which are solely the opinion of the authors. Avi Dor acknowledges funding support from NIH. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
The RAND Journal of Economics, 2003
Our objective is to determine the effect of ownership type (for-profit, not-for-profit, government) on firm conduct in hospital markets. Secondary objectives include estimating hospital demand systems useful for market definition and merger simulation. To this end, we estimate a structural model of demand and pricing in the short term hospital industry in California, and then use the estimates to simulate the effect of a merger. Demand is modeled at the level of individual consumers using discrete choice techniques and micro data on individuals. Price in the demand equation is endogenous, and we use recently developed instrumental variables techniques to correct for this. We allow the behavior of for-profit and not-for-profit firms to differ, modeling these differences structurally following the relevant theory literature. We find that California hospitals in 1995 faced a downward-sloping demand for their products, with an average price elasticity of demand of -5.67.
Costs and price competition in California hospitals, 1980-1990
Health Affairs, 1994
Critics of health care reform proposals that incorporate managed competition contend that it has never been broadly implemented. However, insurance plans that combine insurance with the provision of care have been widely implemented and have been tested most extensively in California. This DataWatch explores California's experience with health maintenance organizations (HMOs) and preferred provider organizations (PPOs), the introduction of which was followed by overall reductions in hospital costs. These reductions were larger in competitive markets. If implemented on a national scale, such selective contracting could be expected to reduce the growth of hospital costs even more rapidly than occurred in California. S everal health care reform proposals rely on managed competition to control costs. This approach envisages multiple levels of competition. Large health insurance purchasing pools would be created and would provide their members with information needed to rank competing insurance plans along several dimensions, such as price, coverage, and quality. Workers would be encouraged to be price-sensitive in their purchase of insurance by a requirement that the costs for services beyond those included in a standard minimum benefit package be paid for out of pocket. Insurers would compete vigorously for enrollees by trying to offer the most attractive combination of prices and plans. Insurers would play a critical role in a managed competition-based system by contracting with providers that offer the best prices, locations, and quality, thereby transmitting competitive pressure from the insurance market to health care providers. Providers would organize themselves into entities that could absorb the risk of contractual obligations that specify costs (and possibly quality) in advance. In combination, these changes are designed to provide all parties-beneficiaries, insurers, and providers-with incentives for cost-effective behavior. A major criticism of managed competition is that it is largely a theoretical construct, with little or no experience or empirical evidence to support its effectiveness. Although this is the case for some elements of the current health care reform proposals-particularly, forming purchasing pools and
CASE 2 Hospital Competition and Costs : The Carilion Case ( 1989 )
2003
Could a merger that substantially increases concentration in a market actually cause lower prices? The special characteristics of hospital services make this an intriguing possibility. In U.S. v. Carilion,1 the proponents of a merger between two hospitals in Roanoke, Virginia, rebuffed the Justice Department’s challenge by demonstrating to the court that hospital markets function differently from those in other lines of commerce. The basic industrial organization and antitrust law paradigm holds that increases in market concentration can adversely affect market performance and consumer welfare. Two characteristics of hospital markets, however, suggest that this paradigm could apply with less force: the prevalence of health insurance, and the dominant role that nonprofit hospitals play as providers of hospital services. First, traditional health insurance is characterized by low co-payment provisions and deductibles and permits the insured to exercise free choice of medical provider....
Competition in Health Care Markets
2011
This paper reviews the literature devoted to studying markets for health care services and health insurance. There has been tremendous growth and progress in this field. A tremendous amount of new research has been done in this area over the last 10 years. In addition, there has been increasing development and use of frontier industrial organization methods. We begin by examining research on the determinants of market structure, considering both static and dynamic models. We then model the strategic determination of prices between health insurers and providers where insurers market their products to consumers based, in part, on the quality and breadth of their provider network. We then review the large empirical literature on the strategic determination of hospital prices through the lens of this model. Variation in the quality of health care clearly can have large welfare consequences. We therefore also describe the theoretical and empirical literature on the impact of market structure on quality of health care. The paper then moves on to consider competition in health insurance markets and physician services markets. We conclude by considering vertical restraints and monopsony power.
Questioning Traditional Antitrust Presumptions: Price and Non-Price Competition in Hospital Markets
SSRN Electronic Journal, 2003
Hospital mergers challenge basic assumptions about the effects of market power in the health care industry. Antitrust courts have struggled with claims that hospital mergers may in fact reduce costs and lower prices. This Article assesses the validity of these economic claims in the context of an industry that has undergone radical transformations in recent years. The Article also explores how such arguments should be treated as a matter of antitrust doctrine in an area of the law that relies heavily on market share presumptions and rule-based decision making. The Article contends that courts should employ a total welfare standard of merger review and attempt to directly assess the value of non-price competition. The Article further argues that courts should avoid focusing exclusively on consumer surplus and should reject hospital overtures to entertain a variety of non-economic justifications for merger.
The Effects of Price Competition and Reduced Subsidies for Uncompensated Care on Hospital Mortality
Health Services Research, 2005
Objective. To determine whether hospital mortality rates changed in New Jersey after implementation of a law that changed hospital payment from a regulated system based on hospital cost to price competition with reduced subsidies for uncompensated care and whether changes in mortality rates were affected by hospital market conditions. Data Sources/Study Setting. State discharge data for New Jersey and New York from 1990 to 1996. Study Design. We used an interrupted time series design to compare risk-adjusted inhospital mortality rates between states over time. We compared the effect sizes in markets with different levels of health maintenance organization penetration and hospital market concentration and tested the sensitivity of our results to different approaches to defining hospital markets. Data Collection/Extraction Methods. The study sample included all patients under age 65 admitted to New Jersey or New York hospitals with stroke, hip fracture, pneumonia, pulmonary embolism, congestive heart failure, hip fracture, or acute myocardial infarction (AMI). Principal Findings. Mortality among patients in New Jersey improved less than in New York by 0.4 percentage points among the insured ( p 5 .07) and 0.5 percentage points among the uninsured ( p 5 .37). There was a relative increase in mortality for patients with AMI, congestive heart failure, and stroke, especially for uninsured patients with these conditions, but not for patients with the other four conditions we studied. Less competitive hospital markets were significantly associated with a relative decrease in mortality among insured patients. Conclusions. Market-based reforms may adversely affect mortality for some conditions but it appears the effects are not universal. Insured patients in less competitive markets fared better in the transition to price competition.