Price effects of a hospital merger: Heterogeneity between health insurers, hospital products and hospital locations, Health economics (PubMed) (RePEc) Published on July 1, 2019
Most business literature has shown that hospital mergers usually lead to higher prices. But what do higher prices mean? Does this mean higher prices for all services? Higher prices for all health insurance companies?
Many economic models assume that hospitals charge a standard base rate and individual intervention fees are a fixed ratio of the base for all hospitals. This approach would be useful in a DRG-based system where prices are proportional to the product of a hospital's base price and the specific weight of the Medicare Severity DRG for a particular hospital stay.
In practice, however, prices may vary between different procedures, between different negotiated contracts with insurers, and even between different locations within the same hospital system. For example, the economic theory in this article shows that the effect of a hospital fusion increases prices the most when an insurer's bargaining power is high. Why? Because if the insurer had a weak bargaining power, the hospital would already have high prices; The marginal impact is only felt when the insurers initially had market power. Another interesting theoretical prediction is that the substitution between hospitals for the service is stronger ON as a service BFor the former product, prices will increase more as the merger reduces the ability of consumers to replace hospitals because of lower supply.
In their empirical applications, the authors use a comprehensive nationwide patient-level record from the Netherlands on hospital admissions and prices. The study covers three different services: hip replacement, knee replacement and cataract surgery. They use a difference-to-difference approach to measure the impact of a merger on prices for different services and between payers.
Although the authors replicated earlier results and showed that prices generally increase after a merger, the authors found significant heterogeneity. For example, prices for hip replacements rose, but not for knee prostheses or cataracts. With four health insurance companies the prices rose, with a fifth not. In short, while previous findings on average prices still apply, the real-world price implications are much more heterogeneous than previous models would predict.
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