Hospital competition in HMO networks.

Area of Science:

• Health economics
• Healthcare management
• Industrial organization

Background:

• Selective contracting between hospitals and health maintenance organizations (HMOs) is a key feature of healthcare markets.
• Understanding the determinants of negotiated prices is crucial for analyzing market competition and healthcare costs.

Purpose of the Study:

• To develop and apply a framework for analyzing bargaining relationships between hospitals and HMOs.
• To estimate the factors influencing negotiated prices paid to hospitals by HMOs.
• To simulate the impact of hospital mergers on bargaining power and prices.

Main Methods:

• Developed a theoretical framework for analyzing bargaining in selective contracting.
• Utilized a unique dataset of Los Angeles area hospitals from 1990-1993.
• Employed econometric methods to estimate determinants of negotiated prices.
• Conducted simulations of hypothetical hospital mergers.

Main Results:

• A hospital's bargaining power, and consequently its negotiated price, diminishes when HMOs have readily available alternative networks.
• Simulations indicate that certain hospital mergers can lead to substantial price increases.
• These price increases can occur even in urban areas with a high density of hospitals.

Conclusions:

• HMO network structure significantly influences hospital bargaining power and negotiated prices.
• Hospital consolidation through mergers poses a risk of increased healthcare costs for consumers.
• Policy interventions may be needed to mitigate potential price hikes resulting from hospital mergers.