Is the Impact of Managed Care on Hospital Prices Decreasing?

Posted: 11 Jun 2007

Date Written: May 20, 2007


Prior studies find that the growth of managed care through the early 1990s introduced a strong positive relationship between price and concentration in hospital markets. We hypothesize that the relaxation of constraints on consumer choice in response to a"managed care backlash" has diminished the price sensitivity of demand facing hospitals, reducing or possibly reversing the price concentration relationship. We test this hypothesis by studying the price/concentration relationship for hospitals in California and Florida for selected years between 1990 and 2003, while addressing the potential endogeneity of concentration. We find an increasingly positive price/concentration in the 1990s with a peak occurring by 2001. Between 2001 and 2003, the growth in this relationship halts and possibly reverses.

Keywords: Hospitals, Managed Care, Pricing

JEL Classification: I11

Suggested Citation

White, William and Dranove, David and Lindrooth, Richard C. and Zwanziger, Jack, Is the Impact of Managed Care on Hospital Prices Decreasing? (May 20, 2007). iHEA 2007 6th World Congress: Explorations in Health Economics Paper, Available at SSRN:

William White (Contact Author)

Cornell University ( email )

120 Martha Van Rensselaer Hall
Ithaca, NY 14853
United States

David Dranove

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8682 (Phone)
847-467-1777 (Fax)

Richard C. Lindrooth

Medical University of South Carolina ( email )

19 Hagood Ave., Suite 401
Charleston, SC 29425
United States

Jack Zwanziger

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

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