Skip to main content
    • Aa
    • Aa

Hospital prices and market structure in the hospital and insurance industries

  • Asako S. Moriya (a1), William B. Vogt (a2) and Martin Gaynor (a3)

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%.

Corresponding author
*Correspondence to: Asako S. Moriya, Heinz College, and Tepper School of Business, Carnegie Mellon University, Pittsburgh, PA, USA. Email:
Hide All
Adamache K. W. Sloan F. A. (1983), ‘Competition between non-profit and for-profit health insurers’, Journal of Health Economics, 2(3): 225243.
American Medical Association (AMA) (2003), Competition in Health Insurance: A Comprehensive Study of US Markets: Second Edition, Chicago: AMA.
American Medical Association (AMA) (2004), Competition in Health Insurance: A Comprehensive Study of US Markets: Third Edition, Chicago: AMA.
American Medical Association (AMA) (2005), Competition in Health Insurance: A Comprehensive Study of US Markets: Fourth Edition, Chicago: AMA.
American Hospital Association (AHA) (2007), ‘Ensuring fair marketplace conditions for providers’, Advocacy Issue Paper, AHA.
Bamezai A., Melnick G. A., Mann J. Zwanziger J. (2003), ‘Hospital selective contracting in the absence of consumer choice: what can we learn from Medi-Cal?’, Journal of Policy Analysis and Management, 22(1): 6584.
Bertrand M., Duflo E. Mullainathan S. (2004), ‘How much should we trust differences-in-differences estimates?’, Quarterly Journal of Economics, 119(1): 249275.
Brooks J. M., Dor A. Wong H. S. (1997), ‘Hospital-insurer bargaining: an empirical investigation of appendectomy pricing’, Journal of Health Economics, 16(4): 417434.
Capps C. S., Dranove D. Satterthwaite M. A. (2003), ‘Competition and market power in option demand markets’, Rand Journal of Economics, 34(4): 737763.
Chakravarty S., Gaynor M., Klepper S. Vogt W. B. (2006), ‘Does the profit motive make Jack nimble? Ownership form and the evolution of the US hospital industry’, Health Economics, 15(4): 345361.
Chollet D. J., Kirk A. M. Chow M. E. (2000), Mapping State Health Insurance Markets: Structure and Change in the States’ Group and Individual Health Insurance Markets, 1995–1997, Washington, DC: Academy for Health Services Research and Health Policy.
Connor R. A., Feldman R. D. Dowd B. E. (1998), ‘The effects of market concentration and horizontal mergers on hospital costs and prices’, International Journal of the Economics of Business, 5(2): 159180.
Cuellar A. E. Gertler P. J. (2003), ‘Trends in hospital consolidation: the formation of local systems’, Health Affairs, 22(6): 7787.
Dafny L., Duggan M., Ramanarayanan S. (2009), ‘Paying a Premium on Your Premium? Consolidation in the US Health Insurance Industry’, NBER Working Paper, No. 15434.
Dor A., Grossman M. Koroukian S. M. (2004a), ‘Hospital transaction prices and managed-care discounting for selected medical technologies’, American Economic Review, 94(2): 352356.
Dor A., Koroukian S. M. Grossman M. (2004b), ‘Managed care discounting: evidence from the MarketScan database’, Inquiry, 41(2): 159169.
Dranove D. Ludwick R. (1999), ‘Competition and pricing by nonprofit hospitals: a reassessment of Lynk’s analysis’, Journal of Health Economics, 18(1): 8798.
Dranove D., Shanley M. White W. D. (1993), ‘Price and concentration in local hospital markets: the switch from patient-driven to payer-driven competition’, Journal of Law and Economics, 36(1): 179204.
Efron B. Tibshirani R. (1993), An Introduction to the Bootstrap, New York: Chapman & Hall.
Elzinga K. G. Hogarty T. F. (1973), ‘The problem of geographic market delineation in antimerger suits’, Antitrust Bulletin, 18(1): 4581.
European Commission (2004), ‘Guidelines on the assessment of horizontal mergers under the council regulation on the control of concentrations between undertakings’, Official Journal of the European Union, C31(3): 518.
Federal Trade Commission and Department of Justice (FTC/DOJ) (1992), ‘Horizontal Merger Guidelines’, Issued April 2, 1992, revised April 8, 1997, Washington, DC: FTC/DOJ.
Federal Trade Commission and Department of Justice (FTC/DOJ) (2004), Improving Health Care: A Dose of Competition, Washington, DC: FTC/DOJ.
Feldman R. Greenberg W. (1981), ‘The relation between the Blue Cross market share and the Blue Cross ‘discount’ on hospital charges’, Journal of Risk and Insurance, 48(2): 235246.
Feldman R. Wholey D. (2001), ‘Do HMOs have monopsony power?’, International Journal of Health Care Finance and Economics, 1(1): 722.
Foreman S. E., Wilson J. A. Scheffler R. M. (1996), ‘Monopoly, monopsony, and contestability in health insurance: a study of Blue Cross plans’, Economic Inquiry, 34(4): 662677.
IIIFrech H. E. (ed.) (1988), ‘Monopoly Health Insurance: the Economics of Kartell v. Blue Shield of Massachusetts’, in, Health Care in America: The Political Economy of Hospitals and Health Insurance, San Francisco: Pacific Research Institute for Public Policy, 293322.
Gaynor M. Vogt W. B. (2000), ‘Antitrust and Competition in Health Care Markets’, in J. P. Newhouse and A. Culyer (eds), Handbook of Health Economics, Amsterdam: Elsevier, 14051487.
Horwitz J., Nichols A. (2007), ‘Peer pressure: hospital ownership mix and service provision’, Working Paper, University of Michigan Law School.
Keeler E. B., Melnick G. Zwanziger J. (1999), ‘The changing effects of competition on non-profit and for-profit hospital pricing behavior’, Journal of Health Economics, 18(1): 6986.
Kessler D. P. McClellan M. B. (2000), ‘Is hospital competition socially wasteful?’, Quarterly Journal of Economics, 115(2): 577615.
Lynk W. J. (1995), ‘Nonprofit hospital mergers and the exercise of market power’, Journal of Law and Economics, 38(2): 437461.
Lynk W. J. Neumann L. R. (1999), ‘Price and profit’, Journal of Health Economics, 18(1): 99105.
Makuc D. M., Haglund B., Ingram D. D., Kleinman J. C. (1991), ‘Vital and Health Statistics: Health Service Areas for the United States’, DHHS Publication No. (PHS) 92-1386, National Center for Health Statistics, Series 2, No. 112, Centers for Disease Control.
Melnick G. Keeler E. (2007), ‘The effects of multi-hospital systems on hospital prices’, Journal of Health Economics, 26(2): 400413.
Melnick G., Zwanziger J., Bamezai A. Pattison R. (1992), ‘The effect of market structure and bargaining position on hospital prices’, Journal of Health Economics, 11(3): 217233.
Noether M. (1988), ‘Competition among hospitals’, Journal of Health Economics, 7(3): 259284.
Simpson J. Shin R. (1998), ‘Do nonprofit hospitals exercise market power?’, International Journal of the Economics of Business, 5(2): 141158.
Sorensen A. T. (2003), ‘Insurer-hospital bargaining: negotiated discounts in post-deregulation Connecticut’, Journal of Industrial Economics, 51(4): 469490.
Staten M., Dunkelberg W. Umbeck J. (1987), ‘Market share and the illusion of power: can Blue Cross force hospitals to discount?’, Journal of Health Economics, 6(1): 4358.
Staten M., Dunkelberg W. Umbeck J. (1988), ‘Market share/market power revisited, a new test for an old theory’, Journal of Health Economics, 7(1): 7383.
Town R. Vistnes G. (2001), ‘Hospital competition in HMO networks’, Journal of Health Economics, 20(4): 733753.
Town R., Wholey D., Feldman R., Burns L. (2006), ‘The welfare consequences of hospital mergers’, NBER Working Paper, No. 12244.
Vogt W. B., Town R. (2006), ‘How has Hospital Consolidation Affected the Price and Quality of Hospital Care?’, Research Synthesis Report No. 9, Robert Wood Johnson Foundation.
Wholey D., Feldman R. Christianson J. B. (1995), ‘The effect of market structure on HMO premiums’, Journal of Health Economics, 14(1): 81105.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Health Economics, Policy and Law
  • ISSN: 1744-1331
  • EISSN: 1744-134X
  • URL: /core/journals/health-economics-policy-and-law
Please enter your name
Please enter a valid email address
Who would you like to send this to? *


Altmetric attention score

Full text views

Total number of HTML views: 7
Total number of PDF views: 100 *
Loading metrics...

Abstract views

Total abstract views: 560 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 24th October 2017. This data will be updated every 24 hours.