Physician, Multi-product cost function, Medicare reimbursement, C30, D24, I12,

No abstract

This paper presents a theoretical and empirical model for analyzing competition in physician private practices using a conjectural variation framework. Our study uses the 1998 American Medical Association (AMA) Socioeconomic Monitoring Survey (SMS) to isolate the marginal cost of physician services at the physician practice level and tests for the degree of collusion and market power in physician private practices. The year 1998 is of particular interest due to charges filed in federal court by The United States Department of Justice (DOJ) against a variety of large physician practices, consequently ruling that physicians could no longer engage in joint negotiations. We investigate the grounds for the indictment by the DOJ, which was based primarily on anecdotal economic and legal observations, rather than the results of empirical evidence from accepted econometric modeling. Our results reveal that the behavior of physicians in medical subspecialties and surgical subspecialties is consistent with a Cournot oligopoly.