Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets

Area of Science:

• Health Economics
• Market Structure Analysis
• Healthcare Policy

Background:

• Narrow hospital networks are prevalent in commercial healthcare markets.
• Insurers have incentives to exclude hospitals to negotiate lower rates.

Purpose of the Study:

• To evaluate the consequences of narrow hospital networks.
• To model insurer exclusion incentives and simulate network outcomes.

Main Methods:

• Developed a bargaining solution: "Nash- in-Nash with Threat of Replacement."
• Utilized California data and prior estimates (Ho and Lee, 2017).
• Simulated equilibrium outcomes for social, consumer, and insurer-optimal networks.

Main Results:

• Private incentives for hospital exclusion exceed social incentives.
• Insurers benefit from significantly lower negotiated hospital rates through exclusion.
• Regulation prohibiting exclusion increases prices and premiums, reducing consumer welfare.

Conclusions:

• Exclusionary practices by insurers create a divergence between private and social incentives.
• While regulation against exclusion may increase costs, it can mitigate localized harm to consumers.
• Policy interventions require careful consideration of trade-offs between market efficiency and consumer protection.