Vertical Contracting In The Us Health Care Industry

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Doctor of Philosophy (PhD)
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Managerial Science and Applied Economics
Dynamic Oligopoly
Health Care Costs
Health Insurance
Hospital Prices
Price Dispersion
Health and Medical Administration
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Craig, Stuart Vincent

This dissertation studies the economic forces that determine prices in business-to-business health care markets. Health care is a large fraction of the US economy. In US health care markets, consumers are often insured and interact with the health care system through intermediary decision makers (health care providers, insurers, and employers). Prices for the associated goods and services in these markets are typically negotiated in business-to-business transactions, which may have complicated implications for consumers. In this dissertation, I analyze pricing agreements across three vertical channels. First, I document large variation across insurers in the prices paid for the same medical services at the same hospital. This price variation, although difficult for consumers to observe, is driven at least in part by insurers' negotiating effort, and materially impacts the value of the insurance plan. Second, in a retrospective analysis of hospital mergers, I document relatively small cost savings, or ``efficiency'' gains post-merger. Where they do exist, cost reductions tend to be concentrated among high-tech implantable devices, and among hospitals for which market concentration in the output market is of the greatest concern. Finally, I study competition in the employer sponsored health insurance market. I estimate a model of supply and demand, which allows me to simulate the introduction of a potential publicly offered insurance plan, or public option, to the employer-sponsored market. I find that a public option has limited competitive impact on competition in the employer sponsored market under most policy scenarios, due to existing price discrimination and wide variation in the cost of providing insurance to different employer groups.

Matthew R. Grennan
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