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  2. ASSA Annual Meeting
  3. 2024
  4. Program
  5. Market Power--Healthcare Products, Pricing and Providers
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Market Power--Healthcare Products, Pricing and Providers

Paper Session

Friday, Jan. 5, 2024 8:00 AM - 10:00 AM (CST)

Grand Hyatt, Bonham E
Hosted By: Health Economics Research Organization
  • Chair: Christopher (Kitt) Carpenter, Vanderbilt University

How Power Shapes Behavior: Evidence From Physicians

Manasvini Singh
,
Carnegie Mellon University

Abstract

Power, defined as the asymmetric control of valued resources, affects most human interactions.
Yet there is little observational evidence on how power affects real-world behavior and resource
allocation. We examine this question using the power differential in the doctor-patient encounter:
while it favors the physician in the clinical setting, powerful patients may be able to reduce this
asymmetry and influence physician behavior. We exploit the quasi-exogenous assignment of 1.5
million patients to physicians in US military emergency departments, using the difference in their
military ranks to measure their power differential. We find that power confers nontrivial advantage
to its possessor: “high-power” patients (those who outrank their physician) receive greater physician
effort and have better outcomes than equivalently-ranked “low-power” patients. Furthermore,
within-physician effort is higher for patients recently promoted than those about to be promoted.
We document negative spillovers from a physician’s high-power patients to their concurrently seen
low-power patients, as well as predictable interactions of such power dynamics with doctor-patient
concordance on race and sex. While power-driven variation in behavior is often undesirable, it is
especially concerning in healthcare where it can harm society’s most vulnerable patients

The Dynamic Effects of Health Care Price Reform

Parker Rogers
,
Indiana University

Abstract

We study how government price reforms affect innovation, market structure, and product quality within the health care sector. We exploit a Medicare payment reform that reduced expenditures on certain types of durable medical equipment (DME) by 66% while leaving other types unaffected. We find that manufacturers filed 29% fewer patents and introduced 22% fewer new models in DME types affected by the price reform relative to those that were unaffected. Additionally, patents filed after the price reform increasingly focused on ``process'' rather than ``product'' innovation, consistent with increased market demand for lower-cost products. The market structure was also affected, with 25% fewer manufacturers entering affected product markets and a 65% increase in outsourcing to foreign companies. The shift towards cost-cutting, both in patenting and supply chain restructuring, was associated with increased device repair rates among Medicare beneficiaries and reported adverse events. Firms that outsourced to foreign manufacturers experienced the highest increase in adverse events. While the Medicare price reform generated substantial savings, these gains were dampened by the adverse effects on innovation, market structure, and product quality in the long run. Our findings highlight the importance of considering dynamic impacts when designing policy reforms.

The WIC Competitive Bidding Contract in the Infant Formula Market

Xi Wang
,
University of Georgia

Abstract

Women, Infants, and Children nutritional program (WIC) grants exclusive contracts (or competitive bidding contracts) to infant formula manufacturers, who provide rebates that lower the cost to WIC. However, these exclusive contracts may create considerable market power for formula manufacturers and spillovers to non-WIC formula buyers. In this paper, I quantify the welfare effect of the WIC contract in the infant formula market by considering the WIC state agency's role in the vertical relationships among consumers, retailers, and manufacturers. To do that, I estimate demand for individuals enrolled in WIC and those not enrolled in WIC using the Nielsen Retail Scan data; and a unique WIC rebate database containing detailed information about WIC contracts. I also quantify the welfare effect of a counterfactual world in which contracts are awarded through other mechanisms.

The preliminary results show a large spillover effect. When the WIC contract changes its winner, previous contract winners' market share declines 50% within one month, but new winners' market share increases 50% on average. Much of this change comes from households who are not eligible for WIC. To explain it, I test whether households who are not eligible for WIC buy contract winners' formula because there is no other option in their choice sets; or they buy because the winners' formula is cheaper than others. The finding suggests that the latter hypothesis plays a main role in explaining the spillover.

The paper is related to two strands of the literature. Many theoretical studies have shown the anti-competitive implications of exclusive contracts, like Calzolari and Denicolo (2013, 2015), and Kang and Muir (2022); this paper complements previous studies by providing empirical evidence. The paper is also connected to work on vertical relationships. However, the ``marriage"" between the WIC state agency and the monopoly manufacturer makes the infant formula market

The Effect of a Large Prescription Opioid Diversion Event on Opioid Mortality in the U.S.

Felipe Lozano-Rojas
,
University of Georgia

Abstract

In December 2007 a massive spike of prescription opioids surged suddenly into retail pharmacies in four Southeastern U.S. states. This spike, which took place entirely over a two-week time span, was restricted to certain counties in Florida, along the Gulf Coasts of Alabama and Mississippi. During the two weeks in December in question 78 “spike counties” experienced an average increase in opioid deliveries of 313% over January to November 2007 average levels, with one Mississippi county experiencing a 1300% increase. In total, we estimate that these 78 counties experienced a surge of over 3.4 billion morphine milligram equivalent units - more than 147 million standard doses - valued at $117 million using the average opioid pharmacy Wholesale Acquisition Cost in 2007. The pattern of facts available is consistent with the hypothesis that Colombian drug cartels became suddenly unable to launder large amounts of physical cash at the end of 2007 at a time when their capacity to supply eastern US heroin markets was failing and therefore used their excess physical cash to acquire prescription opioid products which could then be diverted to the illicit drug market in the US east of the Mississippi River. Importantly, any relative increase in prescription opioids (manufactured with very tight therapeutic windows) in the illicit market would be expected to at least partially displace heroin (manufactured with varying potency which cannot be known prior to consumption). So, the spike in diversion would have made the illicit drug supply safer on average – thus amounting to an unplanned harm-reduction shock for prior heroin or other non-prescription opioid users.

We estimate novel difference-in-differences models of substance-specific opioid mortality, using counties west of the Mississippi River as controls, and the geographic distance to a spike county as the intensity of treatment. We find that in the two

Discussant(s)
David Chan
,
Stanford University
Alice Chen
,
University of Southern California
Diego Jimenez Hernandez
,
Federal Reserve Bank of Chicago
JEL Classifications
  • I1 - Health
  • L0 - General