Hospital selective contracting without consumer choice: what can we learn from Medi-Cal?

Hospital prices and market structure in the hospital and insurance industries

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%.

Consumer channeling by health insurers: natural experiments with preferred providers in the Dutch pharmacy market

Consumer channeling is an important element in the insurer-provider bargaining process. Health insurers can influence provider choice by offering insurance contracts with restricted provider networks. Alternatively, they can offer contracts with unrestricted access and use incentives to motivate consumers to visit preferred providers. Little is known, however, about the effectiveness of this alternative strategy of consumer channeling. Using data from two natural experiments in the Dutch pharmacy market, we examine how consumers respond to incentives used by health insurers to influence their choice of provider. We find that consumers are sensitive to rather small incentives and that temporary incentives may sort a long-term effect on provider choice. In addition, we find that both consumer and provider characteristics determine whether consumers are willing to switch to preferred pharmacies.

The impact of payer-specific hospital case mix on hospital costs and revenues for third-party patients

Competition among hospitals and managed care have forced hospital industry to be more efficient. With higher degrees of hospital competition and managed care penetration, hospitals have argued that the rate of increase in hospital cost is greater than the rate of increase in hospital revenue. By developing a payer-specific case mix index (CMI) for third-party patients, this paper examined the effect of hospital case mix on hospital cost and revenue for third-party patients in California using the hospital financial and utilization data covering 1986-1998. This study found that the coefficients for CMIs in the third-party hospital revenue model were greater than those in the hospital cost model until 1995. Since 1995, however, the coefficients for CMIs in the third-party hospital revenue model have been less than those in hospital cost models. Over time, the differences in coefficients for CMIs in hospital revenue and cost models for third-party patients have become smaller and smaller although those differences are statistically insignificant.