Insurer-Provider Networks in the Medical Care Market

Abstract

I use data on the hospital networks offered by managed care health insurers to estimate the expected division of profits between insurers and providers. I include a simple profit-maximization framework and an additional effect: hospitals that can secure demand without contracting with all insurers (e.g., those most attractive to consumers and those that are capacity constrained) may demand high prices that some insurers refuse to pay. Hospital mergers may also affect price bargaining. I estimate that all three types of hospitals capture higher markups than other providers. These results provide information on the hospital investment incentives generated by bargaining. (JEL G22, G34, I11, L25)

Health information exchange, system size and information silos

“…In the healthcare setting that we study, Melnick and Keeler (2007) documents that larger hospital systems have seen higher price increases in recent years. Ho (2009) provides evidence that hospital systems exploit their bargaining power to negotiate better prices with health insurers. This was confirmed in a recent study performed in Massachusetts by the state attorney general, which documented that larger hospital networks charge more even after controlling for differences in difficulty of care provided (Coakley, 2010).…”

The value of coverage in the medicare advantage insurance market

“…22 Unfortunately there may be multiple "plans" contained under the same "contract". For instance, there may be two plans that have di¤erent bene…ts and di¤erent premiums that have the same contract number, so I cannot determine the number of individuals enrolled in each plan.…”

Moment inequalities in the context of simulated and predicted variables

“…This approach has been utilized to study strategic environments such as product introductions (Eizenberg, 2013) and network formation (Ho, 2009). In both of these binary choice examples, the researchers estimate variable profits in a pre-stage and use the moment inequalities to estimate the fixed cost associated with a positive choice.…”

“…The problem is particularly clear if the variable profits are based on simulation estimators. That is the case for Eizenberg (2013) and Ho (2009), which utilize a simulated demand system (i.e. Berry et al, 1995) in the pre-stage.…”

“…Ciliberto & Tamer (2009) simulate an entry game to determine upper and lower bounds for the probability of a firm entering under different equilibrium selection mechanisms. Ho (2009) uses inequalities to study network formation between hospitals and insurers, and uses predicted profit from a network as an explanatory variable for the firm's choices. The profit function is based on a random coefficient logit demand function as in Berry, Levinsohn & Pakes (1995), which involves simulation.…”