Exclusionary Equilibria in Health-Care Markets (original) (raw)

Mergers and Exclusionary Practices in Health Care Markets

Journal of Economics & Management Strategy, 1999

We evaluate the relationship between insurers payers and providers of ( ) health care hospitals when they each have a nonnegligible share of the market. We focus in particular on their incentives to merge and the existence of equilibria where payers offer preferential treatment to a subset of hospitals. We demonstrate that hospitals are more likely to merge without consolidating their capacities the less competitive they are vis-a-vis thè payer's market. Payers are more likely to merge without consolidating their capacities the less competitive either the hospitals' or the payers' market is. A given payer follows an exclusionary strategy when its starting bargaining position vis-a-vis hospitals is weak. At such exclusionary equilibria, payers tend to distinguish themselves from neighboring payers by contracting with a different subset of hospitals.

Health Insurance and Competition in Markets for Differentiated Medical Products

2015

I study duopolistic market for differentiated medical products. Medical providers decide whether to sell on the spot market to sick consumers or to sell through competitive insurance market to healthy consumers. While shopping for insurance consumers know only the distribution of possible medical needs they may have if they get sick. Only when getting sick their actual medical need reveals and diagnosed. Hence consumers on the insurance market have lower taste differentiation than the sick consumers who are shopping on the spot market. I find that in equilibrium providers sell only on the insurance market, even though this intensifies competition because of lower taste differentiation. Competition between providers under insurance sales brings premiums low enough to motivate consumers buying insurance for both products. Insurance sales generate effi cient horizontal product differentiation, lower prices, and effi ciently higher quality. JEL Classification: : I11, I13, L1 Key-words: ...

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.

Competition among Health Plans: A Two-Sided Market Approach

2009

We set-up a two-sided market framework to model competition between a Prefered Provider Organization (PPO) and a Health Maintenance Organization (HMO). Both health plans compete to attract policyholders on one side and providers on the other side. The PPO, which is characterized by a higher diversity of providers, attracts riskier policyholders. Our two-sided framework allows to examine the consequences of this risk segmentation on the providers' side, especially in terms of remuneration. The outcome of competition mainly depends on two effects: a demand effect, influenced by the value put by policyholders on providers access and an adverse selection effect, captured by the characteristics of the health risk distribution. If the adverse selection effect is too strong, the HMO gets a higher profit in equilibrium. On the contrary, if the demand effect dominates, the PPO profit is higher in spite of the unfavorable risk segmentation. We believe that our model, by highlighting the two-sided market structure of the health plans' competition, provides new insights to understand the increase in the PPOs' market share observed during the last decade in the US.

Competition in the health care market: a “two-sided” approach

Two identical hospitals compete for patients and doctors choosing locations (e.g. specializations) on a Hotelling line, and selecting the quality of the treatment and the salary for the doctors. Patients pay the price chosen by a benevolent central planner. Introducing the presence of cross-group externalities for the patients (i.e. ceteris paribus patients prefer the hospital with the highest number of doctors), we show that in equilibrium hospitals always maximally differentiate their services. The regulator, choosing the price, can affect only the provision of quality that, in equilibrium, may be provided at the socially optimal level.

Public Health Insurance with Monopolistically Competitive Providers and Optional Spot Sales

The B.E. Journal of Economic Analysis & Policy

We study the implications of extending public-insurance coverage over differentiated medical products of the same therapeutic group to market outcomes. The public insurer can set the reimbursement level for medical providers and the copayment for the insured for medical care provided under the policy coverage, but cannot directly control providers’ spot sales (outside of insurance) price. In this setup, the price offered by the public insurer to medical providers must maintain their reservation profit from selling on the spot market directly to consumers. We show that the public insurer can manipulate this reservation profit by setting the copayment rate, and thereby promote market welfare while increasing consumers’ surplus due to lower medical prices and lower market entry. The results survive generalizations including moral hazard and incomplete insurance coverage.

Demand elasticities and service selection incentives among competing private health plans

Journal of health economics, 2017

We examine selection incentives by health plans while refining the selection index of McGuire et al. (2014) to reflect not only service predictability and predictiveness but also variation in cost sharing, risk-adjusted profits, profit margins, and newly-refined demand elasticities across 26 disaggregated types of service. We contrast selection incentives, measured by service selection elasticities, across six plan types using privately-insured claims data from 73 large employers from 2008 to 2014. Compared to flat capitation, concurrent risk adjustment reduces the elasticity by 47%, prospective risk adjustment by 43%, simple reinsurance system by 32%, and combined concurrent risk adjustment with reinsurance by 60%. Reinsurance significantly reduces the variability of individual-level profits, but increases the correlation of expected spending with profits, which strengthens selection incentives.

The effect of physician and health plan market concentration on prices in commercial health insurance markets

International Journal of Health Care Finance & Economics, 2008

The objective of this paper is to describe the market structure of health plans (HPs) and physician organizations (POs) in California, a state with high levels of managed care penetration and selective contracting. First we calculate Herfindahl–Hirschman (HHI) concentration indices for HPs and POs in 42 California counties. We then estimate a multivariable regression model to examine the relationship between concentration measures and the prices paid by HPs to POs. Price data is from Medstat MarketScan databases. The findings show that any California counties exhibit what the Department of Justice would consider high HHI concentration measures, in excess of 1,800. More than three quarters of California counties exhibit HP concentration indices over 1,800, and 83% of counties have PO concentration levels in excess of 1,800. Half of the study counties exhibited PO concentration levels in excess of 3,600, compared to only 24% for plans. Multivariate price models suggest that PO concentration is associated with higher physician prices (p ≤0.05), whereas HP concentration does not appear to be significantly associated with higher outpatient commercial payer prices.

Provider exclusions in US private health insurance contracts

Journal of Hospital Administration, 2019

Two national newspaper articles published in the Fall of 2018 addressed the issue of private health insurance provider contracts that act to exclude specific health systems from health plan networks. Inevitably, the question arises: Are such agreements illegal restraints of trade actionable under federal and state antitrust laws? A long-standing tenet of antitrust law is that it exists to protect competition not competitors. Excluding providers may be a legitimate outgrowth of the contracting process and therefore legal. However, an examination of the contracting process may reveal anticompetitive intent to restrain trade. The specific facts surrounding provider exclusion must be analyzed carefully in an effort to determine if there is illegal restraint of trade.