Competition and Market Power in Option Demand Markets

Capps, Cory S.; Dranove, David; Satterthwaite, Mark A.

doi:10.2139/ssrn.286294

Cited by 127 publications

(312 citation statements)

References 16 publications

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“…First, the results show that the geographic market for hospital competition is fairly local, as the change in market power is concentrated among nearby rivals. This finding is consistent with more recent literature using structure models (Capps, Dranove, and Satterthwaite 2003;Gaynor and Vogt 2003). Therefore, a market defined conventionally by counties or broader geographic areas can lead to underestimation of the real market power of hospitals.…”

Section: Conclusion and Policy Implicationssupporting

confidence: 91%

“…Moreover, until recently, the change in market concentration due to closures has been thought to be limited: although the number of closures is 40% of all horizontal integration activities, 3 it accounts for only one-fifth of the change in hospital concentration measured by the Herfindahl-Hirschman Index (HHI) between 1990 and 2000 (Town et al 2005). However, recent empirical evidence, using improved methodology, has established that the price effect of mergers is substantially (about 10 times) greater than prior estimates made using the structure-conduct-performance method (Capps, Dranove, and Satterthwaite 2003;Gaynor and Vogt 2003;Dafny, forthcoming). Therefore, it is critical to examine the price effect of hospital closures because a minor change in concentration may lead to a notable price hike.…”

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confidence: 99%

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The Price Effect of Hospital Closures

Wu¹

2008

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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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Section: Conclusion and Policy Implicationssupporting

confidence: 91%

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confidence: 99%

The Price Effect of Hospital Closures

Wu¹

2008

INQUIRY

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“…Similarly, we do not know anything about which hospitals are included in a given plan's network, nor about the insurer-hospital contracts. Thus, due to data limitations, we are unable to model the bargaining between insurers and hospitals and to consider constructs such as "Option Demand/Willingness to Pay" (Capps et al 2003) measures for inclusion of certain hospital systems and the effects that this may have on premiums. Nonetheless, while the market measures may not reflect the specific insurer and associated network from which the plan is purchased, they do represent the overall market conditions within which the employer is choosing a policy.…”

Section: Limitationsmentioning

confidence: 99%

How do health insurer market concentration and bargaining power with hospitals affect health insurance premiums?

Trish

Herring

2015

Journal of Health Economics

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The US health insurance industry is highly concentrated, and health insurance premiums are high and rising rapidly. Policymakers have focused on the possible link between the two, leading to ACA provisions to increase insurer competition. However, while market power may enable insurers to include higher profit margins in their premiums, it may also result in stronger bargaining leverage with hospitals to negotiate lower payment rates to partially offset these higher premiums. We empirically examine the relationship between employer-sponsored fully-insured health insurance premiums and the level of concentration in local insurer and hospital markets using the nationally-representative 2006-2011 KFF/HRET Employer Health Benefits Survey. We exploit a unique feature of employer-sponsored insurance, in which self-insured employers purchase only administrative services from managed care organizations, to disentangle these different effects on insurer concentration by constructing one concentration measure representing fully-insured plans' transactions with employers and the other concentration measure representing insurers' bargaining with hospitals. As expected, we find that premiums are indeed higher for plans sold in markets with higher levels of concentration relevant to insurer transactions with employers, lower for plans in markets with higher levels of insurer concentration relevant to insurer bargaining with hospitals, and higher for plans in markets with higher levels of hospital market concentration.

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“…However, there is a large literature that documents that competition lowers hospital prices paid by health insurers (Capps et al, 2004;Gaynor et al, 2004). Another, smaller branch of the literature finds that competition among hospitals can lead to improved outcomes and/or lower patient costs (Kessler et al, 2000).…”

Section: Introductionmentioning

confidence: 99%

Regionalization versus competition in complex cancer surgery

Town

Heslin

2007

HEPL

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The empirical association between high hospital procedure volume and lower mortality rates has led to recommendations for the regionalization of complex surgical procedures. While regionalization may improve outcomes, it also reduces market competition, which has been found to lower prices and improve health care quality. This study estimates the potential net benefits of regionalizing the Whipple surgery for pancreatic cancer patients. We confirm that increased hospital volume and surgeon volume are associated with lower inpatient mortality rates. We then predict the price and outcome consequences of concentrating Whipple surgery at hospitals that perform at least two, four, and six procedures respectively per year. Our consumer surplus calculations suggest that regionalization can increase consumer surplus, but potential price increases extract over half of the value of reduced deaths from regionalization. We reach three conclusions. First, regionalization can increase consumer surplus, but the benefits may be substantially less than implied by examining only the outcome side of the equation. Second, modest changes in outcomes due to regionalization may lead to decreases in consumer surplus. Third, before any regionalization policy is implemented, a deep and precise understanding of the nature of both outcome/volume and price/competition relationships is needed. Regionalization Versus Competition in Complex Cancer Surgery 3 ABSTRACTThe empirical association between high hospital procedure volume and lower mortality rates has led to recommendations for the regionalization of complex surgical procedures. While regionalization may improve outcomes, it also reduces market competition, which has been found to lower prices and improve health care quality. This study estimates the potential net benefits of regionalizing the Whipple surgery for pancreatic cancer patients. We confirm that increased hospital volume and surgeon volume are associated with lower inpatient mortality rates. We then predict the price and outcome consequences of concentrating Whipple surgery at hospitals that perform at least 2, 4 and 6 procedures respectively per year. Our consumer surplus calculations suggest that regionalization can increase consumer surplus, but potential price increases extract over half of the value of reduced deaths from regionalization. We reach three conclusions. First, regionalization can increase consumer surplus, but the benefits may be substantially less than implied by examining only the outcome side of the equation. Second, modest changes in outcomes due to regionalization may lead to decreases in consumer surplus. Third, before any regionalization policy is implemented, a deep and precise understanding of the nature of both outcome/volume and price/competition relationships is needed.

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Competition and Market Power in Option Demand Markets

Cited by 127 publications

References 16 publications

The Price Effect of Hospital Closures

The Price Effect of Hospital Closures

How do health insurer market concentration and bargaining power with hospitals affect health insurance premiums?

Regionalization versus competition in complex cancer surgery

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