Managed care's price bargaining with hospitals

Wu, Vivian Y.

doi:10.1016/j.jhealeco.2008.11.001

Cited by 54 publications

(42 citation statements)

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“…7,8 The ability of health plans to substitute one provider for another to create competition and generate lower prices depends on the concentration of the hospital market in which the plans are buying services. Research shows that in concentrated markets, health plans pay higher prices to hospitals.…”

Section: The Framework For the Studymentioning

confidence: 99%

The Increased Concentration Of Health Plan Markets Can Benefit Consumers Through Lower Hospital Prices

Melnick

Shen

2011

Health Affairs

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The long-term trend of consolidation among US health plans has raised providers' concerns that the concentration of health plan markets can depress their prices. Although our study confirmed that, it also revealed a more complex picture. First, we found that 64 percent of hospitals operate in markets where health plans are not very concentrated, and only 7 percent are in markets that are dominated by a few health plans. Second, we found that in most markets, hospital market concentration exceeds health plan concentration. Third, our study confirmed earlier studies showing that greater hospital market concentration leads to higher hospital prices. Fourth, we found that hospital prices in the most concentrated health plan markets are approximately 12 percent lower than in more competitive health plan markets. Overall, our results show that more concentrated health plan markets can counteract the price-increasing effects of concentrated hospital markets, and that-contrary to conventional wisdom-increased health plan concentration benefits consumers through lower hospital prices as long as health plan markets remain competitive. Our findings also suggest that consumers would benefit from policies that maintained competition in hospital markets or that would restore competition to hospital markets that are uncompetitive.A s the long-term trend of consolidation among US health plans continues, providers have voiced growing concern that health plans will acquire such market power that they will be able to depress the prices paid to providers. The American Hospital Association has argued that health plan consolidation leads to "reimbursement to hospitals and physicians that is below competitive levels," thereby threatening both the quality of care and patients' access to it. 1The American Medical Association has proposed legislation that would allow physicians to bargain collectively with health plans without fear of antitrust prosecution, so as to "level the playing field" in price negotiations. 2,3Despite the importance of these issues, and the growing interest in them, there is limited empirical evidence regarding the relationship between concentrated health plan markets-that is, markets where most people with private health insurance purchase it from one to just several insurers-and the prices that plans pay to providers. There have also been few studies of the relationships among the level of concentration in the market of health plans; the level of concentration in the market of hospitals; and the prices that hospital charge. 4,5 This article adds to the literature by studying how both health plan market concentration and hospital market concentration interact to affect hospital prices in the United States.

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Section: The Framework For the Studymentioning

confidence: 99%

The Increased Concentration Of Health Plan Markets Can Benefit Consumers Through Lower Hospital Prices

Melnick

Shen

2011

Health Affairs

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“…Another variable is a health plan bargaining leverage measure. New studies have established that managed care's market power stems from both the collective volume bargaining and the credibility of moving market shares (Sorenson 2001;Wu 2005). To proxy for the volumediscount effect, I include an HMO HHI (at the level of the Metropolitan Statistical Area [MSA]) that measures whether there is a predominant large buyer(s) in the market.…”

Section: Market Conditionsmentioning

confidence: 99%

The Price Effect of Hospital Closures

Wu¹

2008

INQUIRY

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This paper analyzes the anti-competitive effect of hospital closures between 1993 and 1998. Using a modified rival analysis with difference-in-differences (DD) and difference-in-difference-in-differences (DDD) identification strategies, this study finds that competitors located nearest to closed hospitals were best able to improve their bargaining position. Moreover, rivals that experienced multiple neighborhood closures, that faced large closures relative to their own sizes, and that were located in more concentrated markets were all able to raise prices even more. The overall estimate suggests a 4%, one-time, permanent price increase due to closure, a strong price effect that has been overlooked in the literature.

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“…Availability of alternatives means, for health care third-party payers, the ability to channel patients to different providers. Studies by Ellison and Snyder (2001), Pauly (1998), Sorensen (2003, Staten et al (1988) and Wu (2009) give empirical support to this view. Pauly (1998) noted that size did not preclude small managed care organizations from obtaining significant discounts from hospitals.…”

Section: Evidence On Bargaining Outcomesmentioning

confidence: 91%

“…Sorensen (2003) takes a step further and finds that the ability of third-party payers to direct patients to designated providers has a greater impact than size. Wu (2009) finds that demand elasticity (measured by the patient channelling within the provider network) is even more important than size for the health plans to obtain discounts.…”

Section: Evidence On Bargaining Outcomesmentioning

confidence: 99%

Models of Negotiation and Bargaining in Health Care

Barros¹,

Martínez-Giralt²

2012

The Elgar Companion to Health Economics, Second Edition

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IntroductionUnder traditional health insurance arrangements, citizens were covered by some insurance scheme. When sick, insurance arrangements allowed citizens to go to a health care provider, pay the price of the care received and be reimbursed later. Alternatively, the care provider would be owned by the insurer (like in integrated national health systems) and the patient paid nothing at the moment of consumption. In such arrangements, providers would freely set their prices or have no price to set at all (in an NHS-like system).Recent developments in health care financing include independent institutions that negotiate the prices with the financing institution. This is true with respect to health maintenance organizations (HMOs), managed care in general, but also in national health systems where decentralization and the split between provision and financing is implemented.In this scenario, negotiation over contractual terms, including prices as one major element, becomes a relevant issue in the analysis of performance of health care systems. Both empirical and theoretical analyses have been produced, and are reviewed below.This chapter reflects our views and preferences. It does not aim to be an encyclopaedic view of the existing literature on bargaining in health care. Instead, we try to highlight the new developments associated with explicit bargaining between third-party payers and providers of health care (a relation which is, in itself, only one of many that exist in the health care sector).Bargaining theory has a long tradition in the economics literature. However, it is only recently that this approach has found space in the analysis of the health care sector. The recognition of the strategic interaction among agents in the health care sector (patients, providers and third-party payers) came with the application of models borrowed from the industrial organization tradition dating from the 1970s. It was in the early 1990s when a step forward was taken with the eruption of the models of bargaining (see for example, Osborne and Rubinstein, 1990, for a nice presentation) In many situations the health care sector has the structure of a bilateral monopoly/oligopoly. In this context, bargaining becomes the natural way to approach the interactions among agents.Most economic analyses of contract design in health care in fact assume that the party that moves first, typically the payer, proposes a take-it-or-leave-it offer to the provider. We take here a broader view, looking at other types of negotiation procedures. We do not discuss issues related to contract design, which are taken up in chapter 22 by Chalkley in this Companion.We focus here on models of explicit bargaining between two parties, which we call the payer and the provider. On theoretical grounds, simple bargaining models can have their results transposed in a straightforward way: higher bargaining power and higher

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Managed care's price bargaining with hospitals

Cited by 54 publications

References 42 publications

The Increased Concentration Of Health Plan Markets Can Benefit Consumers Through Lower Hospital Prices

The Increased Concentration Of Health Plan Markets Can Benefit Consumers Through Lower Hospital Prices

The Price Effect of Hospital Closures

Models of Negotiation and Bargaining in Health Care

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