Mergers When Prices Are Negotiated: Evidence from the Hospital Industry
Gautam Gowrisankaran, Aviv Nevo, Robert Town
American Economic Review · 2015 · Volume 105 · Issue 1
Abstract
We estimate a bargaining model of competition between hospitals and managed care organizations (MCOs) and use the estimates to evaluate the effects of hospital mergers. We find that MCO bargaining restrains hospital prices significantly. The model demonstrates the potential impact of coinsurance rates, which allow MCOs to partly steer patients toward cheaper hospitals. We show that increasing patient coinsurance tenfold would reduce prices by 16 percent. We find that a proposed hospital acquisition in Northern Virginia that was challenged by the Federal Trade Commission would have significantly raised hospital prices. Remedies based on separate bargaining do not alleviate the price increases. (JEL C78, G34, I11, I13, L13)
Keywords
Bargaining Theory, Matching Theory, Mergers, Acquisitions, Restructuring, Voting, Proxy Contests, Corporate Governance, Analysis of Health Care Markets, Health Insurance, Public and Private, Oligopoly and Other Imperfect Markets
Enable JavaScript for citation tools and additional paper interactions.