Insurer Competition and Negotiated Hospital Prices
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 moti--vate 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 in--creasing competition reduces hospital prices on average, but that the most attractive hospitals can leverage increased competition to negotiate higher rates. This bargaining effect creates in--centives for further hospital consolidation and implies that hospital market power can impact prices even in markets with many insurers.
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