Mergers When Prices are Negotiated: Evidence from the Hospital Industry
University of Arizona - Eller College of Management; National Bureau of Economic Research (NBER)
Northwestern University - Department of Economics; National Bureau of Economic Research (NBER)
Robert J. Town
University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)
NBER Working Paper No. w18875
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.
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Number of Pages in PDF File: 50
Date posted: March 9, 2013
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