NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Effect of Price Shopping in Medical Markets: Hospital Responses to PPOs in California

Jonathan Gruber

NBER Working Paper No. 4190
Issued in October 1992
NBER Program(s):   HC   PE

The last ten years have seen the introduction of price shopping into medical markets which were previously dominated by price insensitive consumers. Price shopping has been facilitated by the advent of the Preferred Provider Organization (PPO), which coordinates the demand of a large number of individual health care buyers, thereby gaining market rower which it uses to obtain Sleep discounts off list prices from providers. I study hospital responses to the advent of price competition in California over the 1984-1988 period. I note that, due to the nature of hospital bargaining with PPOs, hospitals should face more competitive pressure in hospital markets that arc more competitive ex-ante. This hypothesis is supported by the fact that hospital net prices declined in more ex-ante competitive areas in California after the arrival of PPOs. Hospital average costs did not decline in more competitive areas, however, indicating that there was a reduction in hospital markups. Care to the uninsured by hospitals. which is financed out of markups, fell substantially as competitive pressure grew; there was a 50 cent reduction in uncompensated care for every one dollar rise in discounts to private payers.

download in pdf format
   (660 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

This paper is available as PDF (660 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4190

Published: Journal of Health Economics, July 1994

Users who downloaded this paper also downloaded these:
Anderson, Dobkin, and Gross w15823 The Effect of Health Insurance Coverage on the Use of Medical Services
Fullerton w1655 The Indexation of Interest, Depreciation, and Capital Gains: A Model ofInvestment Incentives
Gaynor, Kleiner, and Vogt w16656 A Structural Approach to Market Definition With an Application to the Hospital Industry
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us