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Physician Market Power and Medical-Care Expenditures

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Listed:
  • 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.

Suggested Citation

  • Abe Dunn & Adam Hale Shapiro, 2011. "Physician Market Power and Medical-Care Expenditures," BEA Working Papers 0078, Bureau of Economic Analysis.
  • Handle: RePEc:bea:wpaper:0078
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jeffrey Clemens & Benedic Ippolito, 2017. "Uncompensated Care and the Collapse of Hospital Payment Regulation: An Illustration of the Tinbergen Rule," NBER Working Papers 23758, National Bureau of Economic Research, Inc.
    2. Abe Dunn & Eli Liebman & Adam Hale Shapiro, 2015. "Implications of Utilization Shifts on Medical‐care Price Measurement," Health Economics, John Wiley & Sons, Ltd., vol. 24(5), pages 539-557, May.
    3. Martin Gaynor & Kate Ho & Robert J. Town, 2015. "The Industrial Organization of Health-Care Markets," Journal of Economic Literature, American Economic Association, vol. 53(2), pages 235-284, June.
    4. Trish, Erin E. & Herring, Bradley J., 2015. "How do health insurer market concentration and bargaining power with hospitals affect health insurance premiums?," Journal of Health Economics, Elsevier, vol. 42(C), pages 104-114.
    5. 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.
    6. Laurence C. Baker & M. Kate Bundorf & Anne Royalty, 2016. "Measuring Physician Practice Competition Using Medicare Data," NBER Chapters,in: Measuring and Modeling Health Care Costs, pages 351-377 National Bureau of Economic Research, Inc.
    7. Abe Dunn & Adam Hale Shapiro, 2014. "Do Physicians Possess Market Power?," Journal of Law and Economics, University of Chicago Press, vol. 57(1), pages 159-193.
    8. Stoddard Christiana & Stock Wendy A. & Hogenson Elise, 2016. "The Impact of Maternity Leave Laws on Cesarean Delivery," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(1), pages 321-364, January.
    9. Jeffrey Clemens & Joshua D. Gottlieb, 2017. "In the Shadow of a Giant: Medicare’s Influence on Private Physician Payments," Journal of Political Economy, University of Chicago Press, vol. 125(1), pages 1-39.
    10. 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.
    11. Samuel Kleiner & William White & Sean Lyons, 2015. "Market power and provider consolidation in physician markets," International Journal of Health Economics and Management, Springer, vol. 15(1), pages 99-126, March.

    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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