Managed Health Care and Provider Integration: a Theory of Bilateral Market Power

Karen Eggleston, George Norman () and Lynne Pepall

No 204, Discussion Papers Series, Department of Economics, Tufts University from Department of Economics, Tufts University

Abstract: Recent empirical studies point to the need for a model of bilateral market power between health plans and provider organizations. We develop such a model and use it to analyze the impact on cost and access of alternative contractual relationships between plans and providers. The plans differentiate themselves through distinct, albeit overlapping, provider networks of specialized, complementary inputs (physician groups and hospitals). We analyze subgame perfect strategic pricing equilibria for a range of possible contractual relationships between the upstream providers and the downstream insurers, including different internal organizational structures of vertically integrated health plans, such as group- and staff-model HMOs and PPOs. The model suggests that forms of provider integration that help to overcome pricing coordination failures can have efficiency benefits above and beyond those associated with economies of scope in outpatient and inpatient delivery.

Keywords: managed care; HMO; PPO; networks; physician-hospital organizations; provider integration (search for similar items in EconPapers)
JEL-codes: I11 (search for similar items in EconPapers)
Date: 2002
New Economics Papers: this item is included in nep-hea and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:tuf:tuftec:0204

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