Managed Health Care and Provider Integration: a Theory of Bilateral Market Power
AbstractRecent empirical studies point to the need for a model of bilateral market power between health plans and provider organizations. We develop such a model and use it to analyze the impact on cost and access of alternative contractual relationships between plans and providers. The plans differentiate themselves through distinct, albeit overlapping, provider networks of specialized, complementary inputs (physician groups and hospitals). We analyze subgame perfect strategic pricing equilibria for a range of possible contractual relationships between the upstream providers and the downstream insurers, including different internal organizational structures of vertically integrated health plans, such as group- and staff-model HMOs and PPOs. The model suggests that forms of provider integration that help to overcome pricing coordination failures can have efficiency benefits above and beyond those associated with economies of scope in outpatient and inpatient delivery.
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Bibliographic InfoPaper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0204.
Date of creation: 2002
Date of revision:
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managed care; HMO; PPO; networks; physician-hospital organizations; provider integration;
Find related papers by JEL classification:
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-03-14 (All new papers)
- NEP-HEA-2002-03-14 (Health Economics)
- NEP-MIC-2002-03-14 (Microeconomics)
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