Market power and provider consolidation in physician markets
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Market power and provider consolidation in physician markets Samuel A. Kleiner · William D. White · Sean Lyons
Received: 18 July 2014 / Accepted: 11 December 2014 © Springer Science+Business Media New York 2015
Abstract 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. Keywords
Physicians · Antitrust · Health · Market structure
JEL Classification
D4 · I11 · L4
S. A. Kleiner (B) Cornell University, NBER, 108 Martha Van Rensselaer Hall, Ithaca, NY 14853, USA e-mail: [email protected] W. D. White Cornell University, 3301A Martha Van Rensselaer Hall, Ithaca, NY 14853, USA S. Lyons Congressional Budget Office, Ford House Office Building, 4th Flr. Second and D Streets, SW, Washington, DC 20515-6925, USA
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Introduction Understanding the role of market power in the health care industry is of considerable interest given the large increases in health care expenditures documented in recent years. The health care sector now accounts for nearly 18 % of US GDP (Hartman et al. 2013). The literature suggests that at least one contributing factor has been the growing consolidation in this sector that has been accompanied by increases in the price of health care services (Health Care Cost Institute 2012). With over 1,400 health care mergers and acquisitions consummated between 1994 and 2009 (Kaiser Family Foundation 2005; Irving Levin Associates 2007, 2008, 2009, 2010), the health care sector has been an active area for antitrust enforcement over the past two decades, and a sizable literature has emerged analyzing market power for health care services. Most of these studies have focused on analyzing competition in the hospital industry (Capps et al. 2003; Gaynor and Vogt 2003; Town and Vistnes 2001; Gowrisankaran et al. 2013) and health insurance industry (Dafny 2010; Starc 2010; Dafny et al. 2012; Ericson and Starc 2012). However, despite the fact that physician and clinical services current
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