Working Paper: NBER ID: w18875
Authors: Gautam Gowrisankaran; Aviv Nevo; Robert Town
Abstract: We estimate a bargaining model of competition between hospitals and managed care organizations (MCOs) and use the estimates to evaluate the effects of hospital mergers. We find that MCO bargaining restrains hospital prices significantly. The model demonstrates the potential impact of coinsurance rates, which allow MCOs to partly steer patients towards cheaper hospitals. We show that increasing patient coinsurance tenfold would reduce prices by 16%. We find that a proposed hospital acquisition in Northern Virginia that was challenged by the Federal Trade Commission would have significantly raised hospital prices. Remedies based on separate bargaining do not alleviate the price increases.
Keywords: hospital mergers; MCO bargaining; healthcare pricing; coinsurance effects
JEL Codes: I11; I18; L11; L13; L31; L38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bargaining structure (C78) | price increases (merger's effects) (D43) |
| MCO negotiation (L14) | hospital pricing (H51) |
| MCO bargaining (J52) | hospital prices (P22) |
| patient coinsurance rates (G52) | hospital prices (P22) |
| merger of Inova Health System and Prince William Hospital (I19) | average price of merging hospitals (G34) |