Vertical Integration between Hospitals and Insurers
76 Pages Posted: 14 Jan 2019 Last revised: 8 May 2019
Date Written: January 2, 2019
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: Suggested Citation