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Physician Market Power and Medical-Care Expenditures

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  • Abe Dunn
  • Adam Hale Shapiro

    (Bureau of Economic Analysis)

Abstract

Physicians play a critical role in determining medical-care expenditures. In this study, we empirically assess the degree to which physicians exploit their bargaining leverage over insurance carriers as a means to raise service prices. We also examine the degree to which these potentially higher payments may translate into different levels of service utilization. We find that physicians are able to translate bargaining leverage into both higher fees and higher service utilization. Ceteris paribus, a cardiologist with high market power (concentration in the 90th percentile) will charge 25 percent higher prices and perform 22 percent more services than a cardiologist with low market power (concentration in the 10th percentile). The corresponding orthopedist will charge 24 percent higher prices and perform 4 percent more services. We provide evidence that the effect of bargaining leverage on service utilization may be explained by physicians responding to the negotiated service prices. As measurement of medical-care output requires an accurate decomposition of nominal expenditures into prices and quantities, this paper shows that bargaining leverage can affect both medical-care prices and utilization.

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Bibliographic Info

Paper provided by Bureau of Economic Analysis in its series BEA Working Papers with number 0078.

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Date of creation: Dec 2011
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Handle: RePEc:bea:wpaper:0078

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  1. Aizcorbe, Ana & Nestoriak, Nicole, 2011. "Changing mix of medical care services: Stylized facts and implications for price indexes," Journal of Health Economics, Elsevier, vol. 30(3), pages 568-574, May.
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  4. Adam Hale Shapiro, 2008. "Estimating the New Keynesian Phillips Curve: A Vertical Production Chain Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(4), pages 627-666, 06.
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  8. Keeler, Emmett B. & Melnick, Glenn & Zwanziger, Jack, 1999. "The changing effects of competition on non-profit and for-profit hospital pricing behavior," Journal of Health Economics, Elsevier, vol. 18(1), pages 69-86, January.
  9. Peter Davis, 2006. "MEASURING THE BUSINESS STEALING, CANNIBALIZATION AND MARKET EXPANSION EFFECTS OF ENTRY IN THE U.S. MOTION PICTURE EXHIBITION MARKET -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 54(3), pages 293-321, 09.
  10. Gruber, Jon & Kim, John & Mayzlin, Dina, 1999. "Physician fees and procedure intensity: the case of cesarean delivery," Journal of Health Economics, Elsevier, vol. 18(4), pages 473-490, August.
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  15. Abe Dunn, 2012. "Drug Innovations and Welfare Measures Computed from Market Demand: The Case of Anti-cholesterol Drugs," American Economic Journal: Applied Economics, American Economic Association, vol. 4(3), pages 167-89, July.
  16. Capps, Cory & Dranove, David & Satterthwaite, Mark, 2003. " Competition and Market Power in Option Demand Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 737-63, Winter.
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  19. Abe C. Dunn & Adam Shapiro & Eli Liebman, 2011. "Geographic Variation in Commercial Medical Care Expenditures: A Decomposition Between Price and Utilization," BEA Working Papers 0075, Bureau of Economic Analysis.
  20. Baker, Laurence C & Corts, Kenneth S, 1996. "HMO Penetration and the Cost of Health Care: Market Discipline or Market Segmentation?," American Economic Review, American Economic Association, vol. 86(2), pages 389-94, May.
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Cited by:
  1. Abe Dunn & Eli Liebman & Adam Hale Shapiro, 2012. "Implications of Utilization Shifts on Medical-Care Price Measurement," BEA Working Papers 0087, Bureau of Economic Analysis.
  2. Martin Gaynor & Kate Ho & Robert Town, 2014. "The Industrial Organization of Health Care Markets," NBER Working Papers 19800, National Bureau of Economic Research, Inc.
  3. Jeffrey Clemens & Joshua D. Gottlieb, 2013. "Bargaining in the Shadow of a Giant: Medicare's Influence on Private Payment Systems," NBER Working Papers 19503, National Bureau of Economic Research, Inc.
  4. Abe C. Dunn & Adam Shapiro & Eli Liebman, 2011. "Geographic Variation in Commercial Medical Care Expenditures: A Decomposition Between Price and Utilization," BEA Working Papers 0075, Bureau of Economic Analysis.
  5. Alex R. Horenstein & Manuel S. Santos, 2012. "A Cross-Country Analysis of Health Care Expenditures," Working Papers 2013-05, University of Miami, Department of Economics.

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