Market power and provider consolidation in physician markets

Physician services comprise a substantial share of total health care spending, and the price of health care services has been cited as a key contributor to the disproportionately high rate of health care spending in the US. However, despite a large literature analyzing market power in the hospital and insurance industries, less is known about the extent to which physicians exercise market power. In this study we make use of a private health insurance claims data set to analyze physician market power for two specialties within three mid-sized US metropolitan areas. Using a method developed for hospital competition analysis, we estimate measures of consumer willingness-to-pay for physician practices within each of these markets and relate these to the prices paid to these practices for a set of physician services. Our results are suggestive of the presence of market power in the markets that we analyze. We simulate physician practice mergers for the two largest practices in each market for each specialty analyzed. Results suggest that practice mergers could result in price increases deemed significant by antitrust authorities in some markets but not in others.