Market Structure and Market Power in Hospital and Physician Markets
This session contains three papers which all investigate the impacts mergers and increasing concentration of hospitals or physician practices. The first two papers examine the effects of mergers between hospitals in different geographic markets. These types of mergers have been relatively unexplored in the literature. The paper by Lewis and Pflum uses a difference in difference approach to evaluate cross-market mergers throughout the U.S. over the previous decade and finds evidence of substantial price increases even when controlling for a variety of other factors. The paper by Dafny, Ho, and Lee also attempts to better understand the motivation for and effect of cross-market hospital mergers. Building off of the hospital-MCO bargaining models that are commonly used to study hospital mergers, they propose a more complete version which incorporates insurer competition and the desire of employers/enrollees for networks that include providers in multiple patient markets. In this model cross-market mergers are capable of increasing a hospital system’s market power. The model is tested using data on hospital prices and affiliations. The paper by Baker, Bundorf, and Royalty examines the increasing trend of consolidation among physician practices. They utilize Medicare claims data to construct county level HHI measures and match this with allowed reimbursement amounts from the Truven Health MarketScan® Research Database. Using a of panel data specifications they identify evidence of significant price increases associated with increased physician concentration.