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  5. Health Care Organizations, Ownership, and Markets
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Health Care Organizations, Ownership, and Markets

Paper Session

Saturday, Jan. 4, 2025 2:30 PM - 4:30 PM (PST)

Clift Royal Sonesta, Calder Room
Hosted By: American Society of Health Economists & American Economic Association
  • Chair: Leemore Dafny, Harvard University

Foisted: The Spillover Effects of Hospital Mergers on Costs and Utilization

Daniel Arnold
,
Brown University
Nandita Radhakrishnan
,
Brown University
Christopher Whaley
,
Brown University

Abstract

Merging hospitals typically claim mergers produce significant cost savings, but there is little evidence that this claim is true. Additionally, in nearly all previous research on this question, the hospital mergers used as interventions were generally between two hospitals in the same geographic market. More recent hospital mergers in the US are much more likely to be between multi-hospital systems that span multiple geographic markets. Potential economies of scale in purchasing and managing inputs makes today's mergers at least theoretically more likely to produce cost savings. Finally, if cost-efficiencies do occur, it is unclear whether they are driven by internal efficiencies or reducing services for low-margin services and populations. Using the universe of all US general acute care hospital mergers between 2010 and 2021, we estimate dynamic event study models that compare cost trends at acquired hospitals to cost trends at hospitals whose ownership did not change. We find no evidence of economically and statistically significant cost reductions at acquired hospitals. We also test whether being acquired multiple times during our study period reduces costs, but again we find no statistically significant cost reductions. However, we do find statistically significant reductions of about 10% in the quantity of total volume, as well as less financially lucrative services such as treatment of Medicaid patients, labor and delivery services, and substance use treatment. Moreover, market-level volume remains the same, suggesting that these less financially lucrative services are now borne by other hospitals in the same market. We further explore how treatment effects differ based on the characteristics of the target and acquirer hospital systems. Overall, our findings show little evidence of cost efficiencies following mergers, but reductions in care to Medicaid patients and low-margin services.

The Effects of Price Regulation in Markets with Strategic Entry: Evidence from Health Insurance Markets

Eilidh Geddes
,
University of Georgia

Abstract

In the US individual health insurance market, the Affordable Care Act established community rating areas made up of groups of counties in which insurers must offer plans at uniform prices, but insurers do not have to enter all counties in a rating area. The exact design of each market has been left to individual states. I first demonstrate that rating area design shifts both entry and pricing using an identification strategy that leverages that rating areas cannot cross state borders. I find that counties whose nearest metropolitan area is across a state line are in smaller rating areas, have less competition, are less likely to be selectively non-entered, and have higher prices. To distinguish between the pricing effects and the entry effects of the regulation and to simulate the effects of policy counterfactuals, I build and estimate a structural model of entry and pricing decisions in the setting of Oregon’s state-run individual insurance exchange. With estimates from this model, I estimate counterfactuals that ban partial entry and change the size of rating areas. I find that under the current rating area design, banning partial entry increases entry overall, but does not result in lower prices or higher enrollment as marginal entrants charge higher prices. Decreasing the size of rating areas increases price dispersion and increases the likelihood that markets are not served. Larger rating areas encourage more competition, but only in homogenous rating areas. These homogenous rating areas do not pool high and low cost consumers together and so do not meaningfully affect the level of price variation in the state. Regulators must balance competition and price variation when designing rating areas.

Managing Margins: Private Equity Effects on Financial, Physical, and Human Capital

Christopher Whaley
,
Brown University
Michael Richards
,
Cornell University
Maggie Shi
,
University of Chicago

Abstract

Private equity (PE) plays an increasingly important role in the modern US economy. However, the impacts of PE on owned-firms are incompletely understood. We exploit a historically large leveraged buyout of a national hospital chain to examine how the full life cycle of PE influences the chain’s revenues, technology sourcing, labor use, and financial performance. We find permanent improvements in hospital volumes and revenues. PE also reduces growth in full-time employees, with a suggestive partial substitution toward part-time workers. Technology adoption is restrained, but the number of contract vendors expands. Overall, our findings reveal nuanced PE effects on firm operations and strategy, which seem to translate to higher net incomes and improved operating margins for affected hospitals.

Dynamic Bargaining between Hospitals and Insurers

Jacob Dorn
,
Princeton University

Abstract

Many markets, including American healthcare markets, feature bilateral bargaining to determine contracts that remain in place for multiple years. Researchers studying these markets generally assume contracts are short-lived. In the United States, hospitals and commercial insurers calculate prices as long-lived multiples of quantities used as benchmarks, such as hospital-set list prices and government-set Medicare payments. This study uses a unique panel dataset on hospital–insurer contracts to study how persistent increases to Medicare reimbursement would impact negotiated payments on behalf of the commercially insured. I extend standard vertical market models to accommodate forward-looking bargaining over multiperiod contracts, and I prove the extension uniquely controls the growth of relevant bargaining states. I apply the model to consider a one-percentage-point annual increase in Medicare payments. The model allows forward-looking negotiators to offset future Medicare-driven price increases by reducing starting prices. After nine years, I estimate that spending on behalf of the commercially insured would increase by 1.319%. Extrapolated nationally, the change would increase 2015 spending by $4.98 billion. In contrast, a myopic model lacking forward-looking offsets would overestimate the effect of the Medicare reimbursement reform by $2.35 billion.

Discussant(s)
Jia Xiang
,
Indiana University
Matthew Zahn
,
Johns Hopkins University
Gonzalo Maturana
,
Emory University
Stuart Craig
,
University of Wisconsin
JEL Classifications
  • I1 - Health
  • L1 - Market Structure, Firm Strategy, and Market Performance