• Read my paper (market concentration, ACOs, antitrust, and more)

    My paper “The future of health care costs: Hospital-insurer balance of power” appears today, published by the National Institute for Health Care Management (NIHCM). It’s about 1,400 words long, roughly the length of two or three of my blog posts. Since I want you to read it, I’ll help you find the time by not posting anything else today.*

    Here’s an extract of the introduction,

    Even with the passage of the Patient Protection and Affordable Care Act (ACA), the U.S. health care system is and will remain predominantly private and market-based. […]

    Market forces, then, heavily influence the characteristics and costs of the U.S. health system. In particular, market structure defined by the degree of consolidation in the hospital and insurance industries is a key determinant of the price paid for hospital services, affecting both the revenue earned by hospitals and the costs to indemnity insurers, self-funded employer plans and policyholders. […]

    In this essay, I draw on the large and growing body of research on the history and consequences of hospital and insurer market concentration to support hypotheses about how provisions of the ACA may differentially affect hospitals, insurers and consumers in the public and private health care market sectors. I also offer suggestions for areas where antitrust policy and health economics research need more attention in order to prepare for the changes ahead.

    Find the paper and read the rest on the NIHCM site. Then, if you wish, come back here for discussion in the comments to this post.

    Acknowledgements: I’m grateful for the input provided by Rex Santerre, Cory Capps, and Julie Schoenman. Though the paper wasn’t formally peer reviewed, in effect it was by these three scholars. I also thank NIHCM for inviting me to participate in their Expert Voices series. It is flattering indeed.

    (I should mention that, coincidentally, Uwe Reinhardt makes some of the same points in a post today. His post is very good, and I’d be making a much bigger deal of it if I didn’t have my own paper coming out today.)

    * I’ll reverse myself and post again today in the event of a breaking health care economics or policy emergency for which a blog post by me is in the national interest.

    • Uwe seems to ignore the effects of excess insurer concentration. It also looks as though we need more data on the relative balance of these two effects. Offhand, I would guess that hospital concentration trumps insurer, except in urban areas for hospitals that do not have sufficient star power.


    • A very solid summary, but let me make one small point. When you say that about 33% of private premiums are paid out to hospitals, you understate the potential market power of a star hospital. That figure includes only hospital expenditures, but of course hospitals partner with employed physicians and affiliated (non-employed) physicians in contracting vehicles like PHOs. A star hospital can command much more than 33% of the local premium dollar.

      @ steve – I agree – while barriers to entry are significant for health insurance, PHO market entry is more difficult against a star hospital.

    • Nice article.

      If we’re searching for an indicator of whether or not insurers are gaining market share; are premium hikes really what we should use as evidence? Indeed, with medical costs going up; isn’t a relatively stable premium actually evidence of a loss for providers? I think a better marker might be either insurance profits or hospital losses.

    • I sort of felt the point of the graph (and obviously it’s your baby, so this is just my early-morning take on it, possible I had more of an agenda reading it than you had creating it) was to show the negative effect of market concentration, be it hospital or insurer. I agree that the negative effect of hospital concentration is higher premiums but I worry that the graph could be taken to mean that because insurer concentration doesn’t result in (much) higher premiums; that insurer concentration isn’t as bad. I think insurer concentration is likely to be worse, financially speaking, and wonder if there isn’t a metric that really captures a near-monopoly insurer’s failure to translate higher medical costs into higher provider payments.

      • @ThomasEN – What’s the mechanism by which insurer concentration is worse than hospital concentration? In the limit both are clearly bad. What’s the argument away from the extremes? Mine is that insurer concentration can counterbalance that of hospitals. It’s not just me, other health economists have said, and empirically shown, the same thing.

      • @ThomasEN – My last comment wasn’t very clear. My point is that insurer concentration can be OK, even good. There’s empirical evidence to back this up. It’s much harder to argue that hospital concentration can ever be (one would have to believe in big economies of scale that are passed on to consumers). That does not mean that insurer concentration is always good.