Vertical Alignment between Hospitals and Physicians as a Bargaining Response to Commercial Insurance Markets

Abstract

The relationship between physicians and hospitals has dramatically changed over the last decade, with the employer-employee model supplanting the traditional model of private physicians with hospital admitting privileges. We examine the motivation for this form of vertical integration by considering physician-hospital alignment as a tool to increase bargaining power with private insurers. We find a positive and significant effect of private insurance concentration on physician-hospital alignment, with larger effects among for-profit hospitals and in counties with multiple hospitals.

Keywords: Healthcare market structure, Hospitals, Physicians, Bargaining, Vertical integration

JEL Classification: I11, L22