Mergers When Prices are Negotiated: Evidence from the Hospital Industry

Gautam Gowrisankaran, Aviv Nevo, Robert Town

NBER Working Paper No. 18875
Issued in March 2013
NBER Program(s):   HC   IO

In healthcare and other bilateral oligopoly markets, prices are often negotiated by the contracting parties. Many hospitals have merged in recent years in part to gain bargaining leverage with managed care organizations (MCOs), leading to several antitrust trials. We specify and estimate a bargaining model of competition between hospitals and MCOs using claims and discharge data from Northern Virginia. We find that MCO bargaining restrains hospital prices significantly relative to standard insurance. Increasing patient coinsurance tenfold would reduce prices by 16%. A proposed hospital acquisition that was challenged by the Federal Trade Commission would have significantly raised hospital prices.

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Acknowledgments and Disclosures

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