Mergers When Prices Are Negotiated: Evidence from the Hospital Industry
- (pp. 172-203)
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. (JEL C78, G34, I11, I13, L13)Citation
Gowrisankaran, Gautam, Aviv Nevo, and Robert Town. 2015. "Mergers When Prices Are Negotiated: Evidence from the Hospital Industry." American Economic Review, 105 (1): 172-203. DOI: 10.1257/aer.20130223Additional Materials
JEL Classification
- C78 Bargaining Theory; Matching Theory
- G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
- I11 Analysis of Health Care Markets
- I13 Health Insurance, Public and Private
- L13 Oligopoly and Other Imperfect Markets