Insurer-Provider Networks in the Medical Care Market
Managed care health insurers in the US restrict their enrollees' choice of hospitals to specific networks. This paper investigates the causes and welfare effects of the observed hospital networks. A simple profit maximization model explains roughly 63 per cent of the observed contracts between insurers and hospitals. I estimate a model that includes an additional effect: hospitals that do not need to contract with all insurance plans to secure demand (for example, providers that are capacity constrained under a limited or selective network) may demand high prices that not all insurers are willing to pay. Hospitals can merge to form "systems" which may also affect bargaining between hospitals and insurance plans. The analysis estimates the expected division of profits between insurance plans and different types of hospitals using data on insurers' choices of network. Hospitals in systems are found to capture markups of approximately 19 per cent of revenues, in contrast to non-system, non-capacity constrained providers, whose markups are assumed to be about zero. System members also impose high penalties on plans that exclude their partners. Providers that are expected to be capacity constrained capture markups of about 14 per cent of revenues. I show that these high markups imply an incentive for hospitals to under-invest in capacity despite a median benefit to consumers of over $330,000 per new bed per year.
|Date of creation:||Dec 2005|
|Date of revision:|
|Publication status:||published as Katherine Ho, 2009. "Insurer-Provider Networks in the Medical Care Market," American Economic Review, American Economic Association, vol. 99(1), pages 393-430, March.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eggleston Karen & Norman George & Pepall Lynne Marie, 2004. "Pricing Coordination Failures and Health Care Provider Integration," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-31, December.
- Town, Robert & Vistnes, Gregory, 2001. "Hospital competition in HMO networks," Journal of Health Economics, Elsevier, vol. 20(5), pages 733-753, September.
- Esther Gal-Or, 1997. "Exclusionary Equilibria in Health-Care Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 5-43, 03.
- Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-77, June.
- Esther Gal-Or, 1999. "Mergers and Exclusionary Practices in Health Care Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(3), pages 315-350, 09.
- McClellan, Mark & Cutler, David & Newhous, Joseph P., 2000. "How Does Managed Care Do It?," Scholarly Articles 2643884, Harvard University Department of Economics.
- Brooks, John M. & Dor, Avi & Wong, Herbert S., 1997. "Hospital-insurer bargaining: An empirical investigation of appendectomy pricing," Journal of Health Economics, Elsevier, vol. 16(4), pages 417-434, August.
- Elie Tamer & Federico Ciliberto, 2004.
"Market Structure and Multiple Equilibria in Airline Markets,"
Econometric Society 2004 North American Winter Meetings
517, Econometric Society.
- Federico Ciliberto & Elie Tamer, 2009. "Market Structure and Multiple Equilibria in Airline Markets," Econometrica, Econometric Society, vol. 77(6), pages 1791-1828, November.
- Elie Tamer & Federico Ciliberto, 2004. "Market Structure and Multiple Equilibria in Airline Markets," 2004 Meeting Papers 52, Society for Economic Dynamics.
- Ciliberto, Federico & Tamer, Elie, 2009. "Market structure and multiple equilibria in airline markets," MPRA Paper 38635, University Library of Munich, Germany.
- Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
- 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.
- David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
This item is featured on the following reading lists or Wikipedia pages:
- Insurer-Provider Networks in the Medical Care Market (AER 2009) in ReplicationWiki
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:11822. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.