Economics at the FTC: Hospital Mergers, Authorized Generic Drugs, and Consumer Credit Markets

Abstract

Antitrust, Consumer credit, Consumer protection, FTC, Hospital mergers, Pharmaceuticals,

Market power and provider consolidation in physician markets

“…Payment is calculated according to the formula [(work RVU) * (work GPCI) + (Practice Expense RVU) * (Practice Expense GPCI) + (Malpractice RVU) * (Malpractice GPCI)] * [Conversion factor] where the conversion factor is a dollar amount used to convert RVUs to physician payment. 10 Furthermore, we note that this assumption is consistent with subsequent studies that make us of the Capps et al (2003) model (Fournier and Gai 2007;Farrell et al 2011) and that Gaynor et al (2013) find that mergers estimated using the assumptions of Capps et al (2003) produce estimates of price increases due to merger that are close to those that would be implied using other economic models of hospital competition. 11 It is important to note that a limitation of this approach is that it assumes that the WTP-per-quantity for Medicare patients is a reasonable proxy for the WTP-per-quantity unit for private patients.…”

“…We are careful to note a number of limitations to this model. First, as noted by Gaynor and Town (2012) and Farrell et al (2011) this relationship is best conceptualized as an approximation to a bargaining game, where the WTP k measure serves as a proxy to the incremental gross payoff to the insurer generated by the inclusion of physician practice k by its inclusion in a network. Secondly, the residuals from this regression capture all factors that affect price but are not included in the observables which include bargaining ability and unobserved costs.…”

“…Consequently, we adopt the approach of Farrell et al (2011) who relate W T P j from Eq. (5) to the prices charged by health care providers, where the appropriate measure of WTP is normalized by the expected patient volume (Gaynor and Town 2012).…”

“…In this case the incentive to add a physician practice to a network is generated only through the incremental value generated by the addition of this practice, and not through any cost advantages. Farrell et al (2011) note that models that ignore these diversions limit the focus of the analysis to the first-order price effects that result directly from the potential elimination of competition between the merging firms, and therefore generally produce smaller merger effects.…”

“Nash-in-Nash” Bargaining: A Microfoundation for Applied Work

“…2 The Federal Communication Commission used a bargaining model similar to that analyzed in this paper in its analysis of the Comcast-NBC merger (Rogerson, 2013) and in recent hospital merger cases (Farrell et al, 2011). Also, in a recent ruling in a restraint of trade case in sports broadcasting, Judge Shira Scheindlin's opinion heavily referenced the Crawford and Yurukoglu (2012) bargaining framework as an appropriate way to consider competition in this sector (cf.…”