Vertical Integration between Hospitals and Insurers

76 Pages Posted: 14 Jan 2019 Last revised: 8 May 2019

See all articles by José Ignacio Cuesta

José Ignacio Cuesta

Department of Economics, University of Chicago

Carlos Noton

Dept of Industrial Engineering - University of Chile

Benjamin Vatter

Northwestern University

Date Written: January 2, 2019

Abstract

The welfare effects of vertical integration are ambiguous. Cost efficiencies and the elimination of double marginalization may offset increases in market power and incentives to raise rivals' costs. To study the effects of vertical integration between insurers and hospitals, we develop a model of bargaining and competition. Integrated firms have incentives to increase hospital prices to rivals to steer demand to integrated partners. We estimate the model using administrative data on claims and plans from Chile, where vertically integrated hospitals account for half of all admissions. Our estimates imply that steering incentives are significant and that vertical integration decreases welfare.

Keywords: health market, vertical integration, insurance competition, hospital competition, bargaining

JEL Classification: I11, L13, L40

Suggested Citation

Cuesta, José Ignacio and Noton, Carlos and Vatter, Benjamin, Vertical Integration between Hospitals and Insurers (January 2, 2019). Available at SSRN: https://ssrn.com/abstract=3309218 or http://dx.doi.org/10.2139/ssrn.3309218

José Ignacio Cuesta

Department of Economics, University of Chicago ( email )

1126 E 59th Street
Chicago, IL 60637
United States

Carlos Noton (Contact Author)

Dept of Industrial Engineering - University of Chile ( email )

Beauchef 851
Santiago, RM
Chile

HOME PAGE: http://www.dii.uchile.cl/~cnoton/

Benjamin Vatter

Northwestern University ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

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