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American Economic Review Vol. 105 No. 1 2015

Mergers When Prices Are Negotiated: Evidence from the Hospital Industry

Gautam Gowrisankaran1; Aviv Nevo2; Robert Town3

1 Department of Economics, University of Arizona, PO Box 210108, Tucson, AZ 85721, HEC Montreal, and NBER (e-mail: ) · 2 Department of Economics, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208-2600, and NBER (e-mail: ) · 3 Wharton School, University of Pennsylvania, 3641 Locust Walk, Philadelphia, PA 19104, and NBER (e-mail: ).

Abstract

We estimate a bargaining model of competition between hospitals and managed care organizations (MCOs) and use the estimates to evaluate the effects of hospital mergers. We find that MCO bargaining restrains hospital prices significantly. The model demonstrates the potential impact of coinsurance rates, which allow MCOs to partly steer patients toward cheaper hospitals. We show that increasing patient coinsurance tenfold would reduce prices by 16 percent. We find that a proposed hospital acquisition in Northern Virginia that was challenged by the Federal Trade Commission would have significantly raised hospital prices. Remedies based on separate bargaining do not alleviate the price increases.

DOI
10.1257/aer.20130223
Volume
105
Issue
1
Pages
172-203
Language
en
Sources
crossref openalex bibtex:phds-export.bib

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