Market power

Recent NBER publications by Laurence Baker, M. Kate Bundorf, and Daniel Kessler:

1) “The Effect of Hospital/Physician Integration on Hospital Choice“:

We find that a hospital’s ownership of an admitting physician dramatically increases the probability that the physician’s patients will choose the owning hospital. We also find that ownership of an admitting physician has large effects on how the hospital’s cost and quality affect patients’ hospital choice. Patients whose admitting physician is not owned by a hospital are more likely to choose facilities that are low cost and high quality. For these patients, the marginal effect on choice of a hospital’s costliness is negative, as is the marginal effect of a hospital’s rate of adverse health outcomes. By contrast, patients are more likely to choose a high-cost, low-quality hospital when their admitting physician’s practice is owned by that hospital. The sum of the marginal effects on choice of cost and the interactions between ownership and cost are positive, as is the sum of the marginal effects of a hospital’s adverse outcome rate and the interactions between ownership and adverse outcomes. We conclude that hospital/physician integration affects patients’ hospital choices in a way that is inconsistent with their best interests.

2) “Does Health Plan Generosity Enhance Hospital Market Power?” :

To what extent does the generosity of health insurance coverage facilitate the exercise of market power by producers of health services?  […]

We find a statistically significant and economically important effect of plan generosity on hospital prices in uncompetitive markets. Defining a county as “high generosity” when the weighted average actuarial value of plans in it is above the median, counties with generous plans and uncompetitive hospital markets have approximately 8.6 percent higher prices than counties with low generosity and competitive markets, holding constant county- and time-fixed effects and other time-varying characteristics of counties, including their hospital market characteristics. Defining a county as high generosity when the weighted average value of plans in it is above the 75th percentile leads the estimated interaction between generosity and competitiveness to rise to 10.6 percent. These findings suggest that most of the aggregate effect of hospital market structure on prices found in previous work may be coming from areas with generous plans.

We also find substantial effects of plan generosity on the hospital admissions rate. Using the median as the cutoff for high plan generosity, counties with high generosity have approximately 18.9 percent more hospital admissions than counties with low generosity. We find no significant interaction between generosity and hospital market competitiveness on the admissions rate.


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