Mergers When Prices are Negotiated: Evidence from the Hospital Industry

Gautam Gowrisankaran, Aviv Nevo and Robert Town

No 18875, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We estimate a bargaining model of competition between hospitals and managed care organizations (MCOs) and use the estimates to evaluate the effects of hospital mergers. We find that MCO bargaining restrains hospital prices significantly. The model demonstrates the potential impact of coinsurance rates, which allow MCOs to partly steer patients towards cheaper hospitals. We show that increasing patient coinsurance tenfold would reduce prices by 16%. We find that a proposed hospital acquisition in Northern Virginia that was challenged by the Federal Trade Commission would have significantly raised hospital prices. Remedies based on separate bargaining do not alleviate the price increases.

JEL-codes: I11 I18 L11 L13 L31 L38 (search for similar items in EconPapers)
Date: 2013-03
New Economics Papers: this item is included in nep-com and nep-ind
Note: EH IO
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Citations: View citations in EconPapers (18)

Published as Gowrisankaran, Gautam, Aviv Nevo, and Robert Town. 2015. "Mergers When Prices Are Negotiated: Evidence from the Hospital Industry." American Economic Review, 105(1): 172-203.

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Journal Article: Mergers When Prices Are Negotiated: Evidence from the Hospital Industry (2015)
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