Vertical Integration in the Health Care Market
Sunday, Jan. 7, 2018 1:00 PM - 3:00 PM
- Chair: Haizhen Lin, Indiana University
Subsidizing Consolidation? Unintended Consequences of a Federal Drug Discount Program
AbstractWe study hospital response to the 340B Drug Discount program, a federal policy that entitles almost 45% of hospitals to discounts of between 20% to 50% on drugs, including specialty drugs that are administered through infusion or injection (e.g., chemotherapy agents). The drug discounts provide 340B hospitals a competitive advantage in outpatient drug administration and drug-intensive specialties. We examine hospital response to these profit incentives along several dimensions of policy interest: hospital-physician consolidation, drug provision, and provision of uncompensated care. Our primary empirical strategy is a fuzzy regression discontinuity design that exploits a cutoff for hospital eligibility into the program to identify exogenous variation in hospitals' 340B participation. Using a novel empirical measure of hospital-physician consolidation, we find that the program causes hospital-physician consolidation in certain drug-intensive specialties such as oncology. We also find evidence of increased drug spending per patient in certain drug-intensive specialties.
The Price Effects of Supplier Consolidation in a Regulated Market: Prescription Drug-based Cancer Care
AbstractI examine the impact of oncology practice consolidation on the prices of outpatient prescription drug-based cancer treatment paid by commercial insurers and patients in 2009-2013. I used Health Care Cost Institute (HCCI) claims to identify cancer cases and inflation-adjusted treatment prices and IMS Health SK&A provider survey to measure horizontal and vertical consolidation. I linked HCCI claims to SK&A using a geographically defined market to account for secular levels and trends in insurer bargaining power. Fixed effects were estimated using GLM to quantify changes in price among markets with increasing concentration using markets exhibiting no change in consolidation as a control group. Average horizontal consolidation across markets declined slightly, from 31 percent in 2009 to 24 percent in 2013; while vertical consolidation doubled, from 16 percent in 2009 to 32 percent in 2013. Between 2009 and 2013, within market horizontal consolidation experienced no change while vertical consolidation increased on average 12 percent. There was no direct impact of consolidation on prices paid. A 10 percent increase in vertical consolidation within markets was associated with a statistically significant 1-4 percent one-year lagged net increase in outpatient prescription-drug based cancer treatment prices paid by patients, not insurers. However, the real inflation-adjusted effects of vertical consolidation amount to an $20 increase in annual patient payments for outpatient cancer care. Results are robust to numerous sensitivity checks. Results are weakly consistent with hypothesized foreclosure effects from vertical consolidation (post-Chicago school). Whether and how increased payment associated with provider consolidation alters patient demand for cancer care is an important unanswered question. Stakeholder concerns regarding the unintended consequences of outpatient cancer provider consolidation may be warranted.
University of Pennsylvania
- I0 - General
- L2 - Firm Objectives, Organization, and Behavior