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Hospital prices and market structure in the hospital and insurance industries

Published online by Cambridge University Press:  01 October 2010

Asako S. Moriya*
Affiliation:
Heinz College, and Tepper School of Business, Carnegie Mellon University, Pittsburgh, USA
William B. Vogt
Affiliation:
RAND Corporation, Pittsburgh, USA, and National Bureau of Economic Research, Cambridge, USA
Martin Gaynor
Affiliation:
Heinz College, Carnegie Mellon University, Pittsburgh, USA, Centre for Market and Public Organisation, Bristol, UK, RAND Corporation, Pittsburgh, USA, and National Bureau of Economic Research, Cambridge, USA
*
*Correspondence to: Asako S. Moriya, Heinz College, and Tepper School of Business, Carnegie Mellon University, Pittsburgh, PA, USA. Email: asako.moriya@gmail.com

Abstract

There has been substantial consolidation among health insurers and hospitals, recently, raising questions about the effects of this consolidation on the exercise of market power. We analyze the relationship between insurer and hospital market concentration and the prices of hospital services. We use a national US dataset containing transaction prices for health care services for over 11 million privately insured Americans. Using three years of panel data, we estimate how insurer and hospital market concentration are related to hospital prices, while controlling for unobserved market effects. We find that increases in insurance market concentration are significantly associated with decreases in hospital prices, whereas increases in hospital concentration are non-significantly associated with increases in prices. A hypothetical merger between two of five equally sized insurers is estimated to decrease hospital prices by 6.7%.

Type
Articles
Copyright
Copyright © Cambridge University Press 2010

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