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Insurer Competition and Negotiated Hospital Prices

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  • Kate Ho
  • Robin S. Lee

Abstract

We measure the impact of increased health insurer competition on negotiated hospital prices using detailed 2004 California claims data. We develop a theoretical bargaining model to moti­vate our empirical analysis, and use the competitiveness of Kaiser Permanente, a large vertically integrated insurer, in a hospital’s market as a measure of insurer competition. We find that in­creasing competition reduces hospital prices on average, but that the most attractive hospitals can leverage increased competition to negotiate higher rates. This bargaining effect creates in­centives for further hospital consolidation and implies that hospital market power can impact prices even in markets with many insurers.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19401.

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Date of creation: Sep 2013
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Handle: RePEc:nbr:nberwo:19401

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  1. Katherine Ho, 2005. "The Welfare Effects of Restricted Hospital Choice in the US Medical Care Market," NBER Working Papers 11819, National Bureau of Economic Research, Inc.
  2. Ariel Pakes & J. Porter & Kate Ho & Joy Ishii, 2007. "Moment inequalities and their application," CeMMAP working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies CWP16/07, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  3. Leemore Dafny & Kate Ho & Mauricio Varela, 2013. "Let Them Have Choice: Gains from Shifting Away from Employer-Sponsored Health Insurance and toward an Individual Exchange," American Economic Journal: Economic Policy, American Economic Association, American Economic Association, vol. 5(1), pages 32-58, February.
  4. Matthew Grennan, 2013. "Price Discrimination and Bargaining: Empirical Evidence from Medical Devices," American Economic Review, American Economic Association, American Economic Association, vol. 103(1), pages 145-77, February.
  5. Alan T. Sorensen, 2003. "Insurer-hospital bargaining: negotiated discounts in post-deregulation connecticut," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 51(4), pages 469-490, December.
  6. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 63(3), pages 375-410, July.
  7. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
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Cited by:
  1. Gautam Gowrisankaran & Aviv Nevo & Robert Town, 2013. "Mergers When Prices are Negotiated: Evidence from the Hospital Industry," NBER Working Papers 18875, National Bureau of Economic Research, Inc.
  2. Mark Duggan & Amanda Starc & Boris Vabson, 2014. "Who Benefits when the Government Pays More? Pass-Through in the Medicare Advantage Program," NBER Working Papers 19989, National Bureau of Economic Research, Inc.

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