Hospital Competition in the Netherlands: An Empirical Investigation

Abstract

The Dutch government introduced managed competition to the health care sec-tor in 2006. In this regulatory framework insurers compete for enrollees and providers compete for contracts with insurers. The resulting contracts are determined by bargaining, which outcome depends on the relative position of the provider. In this paper, we compare how commonly used market power indicators predict bargaining outcomes. We combine 2013 transaction data with bilateral contract data. Our empirical models explain the relative differences in hospitals’ revenues while controlling for differences in the complexity of patients. Four indicators are used: the logit competition index (LOCI), willingness-to-pay (WTP), Elzinga-Hogarty market share and a rule-of-thumb market share. We find that WTP and LOCI perform best empirically.

Keywords: Hospital competition, Market power, Bargaining

JEL Classification: I11, L44, L13, D22