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Summary GW4573M Competition in Healthcare markets all lectures (part literature)
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Summary GW4573M Competition in Healthcare markets all lectures (part literature)
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Competition in Health Care Markets – GW4573MInhoudsopgave
Week 1 ......................................................................................................................................................................................... 1
M1: The industrial organization of health care markets ........................................................................................................... 1
M2: Network formation and price negotiations ........................................................................................................................ 6
Week 2 ....................................................................................................................................................................................... 10
M3: Physician treatment & referral decisions and price transparency ................................................................................... 10
M4: Insurer premium setting and health plan choice ............................................................................................................... 18
Week 3 ....................................................................................................................................................................................... 24
M5: Competition law - theory................................................................................................................................................. 24
M6: Competition law - practice .............................................................................................................................................. 30
Week 4 ....................................................................................................................................................................................... 34
M7: Competition & competition policy in markets for health care - international experiences & challenges .......................... 34
M8: Monopsony power and vertical integration in health care .............................................................................................. 39
Week 5 ....................................................................................................................................................................................... 44
M9: Market definition as a preliminary step for effective hospital merger control ................................................................ 44
M10: Retrospective merger analysis & merger simulation in healthcare ................................................................................ 52
Week 6 ....................................................................................................................................................................................... 60
M11: Theory meets practice ................................................................................................................................................... 60
Lecture 1 https://eur.cloud.panopto.eu/Panopto/Pages/Viewer.aspx?id=aa8a0117-2bc6-417e-aa57-ae2a00f5f23a
Lecture 2 https://eur.cloud.panopto.eu/Panopto/Pages/Viewer.aspx?id=bc0b0b44-2c3d-4b28-ac19-ae2a00f64011
Lecture 3 https://eur.cloud.panopto.eu/Panopto/Pages/Viewer.aspx?id=b86bce5e-2848-4f6b-a084-ae2e00fe86a0
Lecture 4 https://eur.cloud.panopto.eu/Panopto/Pages/Viewer.aspx?id=949e7c6e-49b8-4c8c-931f-ae2f00e4bf46
Lecture 5 https://eur.cloud.panopto.eu/Panopto/Pages/Viewer.aspx?id=d423b655-3f43-4dcb-a929-ae3200b2092a
Lecture 6 https://eur.cloud.panopto.eu/Panopto/Pages/Viewer.aspx?id=09af2628-61fb-4f28-abbd-ae3600b6e80d
Lecture 7 & 8 https://eur.cloud.panopto.eu/Panopto/Pages/Viewer.aspx?id=aa55ae1f-2d97-40e2-ab5d-ae3e00b6fa42
Lecture 9 + 10 https://eur.cloud.panopto.eu/Panopto/Pages/Viewer.aspx?id=f529af31-4dea-4b66-972c-ae4300c8bb87
Week 1
M1: The industrial organization of health care markets
Lecturer: Marco Varkevisser
Mandatory literature (for the exam)
1
, • Gaynor, M., K. Ho & R.J. Town. 2015. ‘The industrial organization of health-care markets (Links to an external
site.)’. Journal of Economic Literature. 53(2): 235-251 & 276-279. (21 pages)
The U.S. health-care sector is large and growing—health care spending in 2011 amounted to $2.7 trillion and 18 percent of GDP
(Hartman et al. 2013).1 This makes the U.S. health sector the sixth largest “economy” in the world.
This paper focuses on the functioning of health-care markets for good reason—markets play a large role in the delivery of health
care in many countries, and in the financing of care in the United States, the Netherlands, and Switzerland.
Key Issues in the Industrial Organization of Health Care
Recent research on health-care markets has focused on the different ways in which interactions between firms affect variables that
directly impact welfare. These variables include provider quality, prices, treatment decisions, and insurer premiums.
1. Quality determination in provider markets
2. Price and network determination in provider markets
3. Premium determination in insurance markets
4. Consumer choice in insurance markets
5. Incentives and provider referral decisions/consumer utilization.
In this review we focus on market models of price and quality determination
Figure 1 displays the trends in the hospital Herfindahl–Hirschman Index
(HHI), the number of within-market hospital mergers and acquisitions, and
the percentage of the population enrolled in an HMO from 1990–2006.
The message from figure 1 is that U.S. hospital markets are highly
concentrated and have become even more concentrated over time.
• Roos, A.F., O. O'Donnell, F.T. Schut, E. van Doorslaer, R. van Gestel
& M. Varkevisser (2020), Does price deregulation in a competitive hospital market damage quality? (Links to an
external site.), Journal of Health Economics, Vol. 72, 102328 (16 pages)
Competition between healthcare providers is increasingly encouraged with the aim of improving quality of care while slowing the
growth of health spending. When prices are regulated, providers are forced to compete on quality to attract patients or contracts
with insurers. When prices are unregulated, the effect of competition on quality is less clear.
This paper examines the impact of price deregulation on the quality of hospital care delivered in the Dutch healthcare market in
which insurers compete for customers and hospitals compete for contracts with insurers
2. Competition and healthcare quality with unregulated prices: theory and evidence
When prices are unregulated, the impact of competition on quality depends on how it affects the responsiveness of demand to
quality relative to its responsiveness to price. If consumers, or insurers purchasing on their behalf, observe prices but have only
imperfect information on quality, then competition might be expected to raise the price sensitivity relative to the quality sensitivity
of demand, and so reduce quality (Kranton, 2003). Gaynor (2006) makes this argument using an amended version of the
Dorfman-Steiner condition (Dorfman and Steiner, 1954): = , where z is quality, p is price, d is the marginal cost of
quality, εz is the elasticity of demand with respect to quality and εp is the elasticity with respect to price
3. Price deregulation in the Dutch hospital care market
Comprehensive health insurance in the Netherlands with very limited cost sharing leaves patients insensitive to price and plausibly
more concerned about quality. However, as Dutch health insurers compete on the prices of the packages they offer, they are
likely to be more sensitive to the prices of healthcare products than patients. After price deregulation in 2005, insurers had an
incentive to push prices lower in negotiations with hospitals and were possibly more concerned about price than quality
7. Conclusion
When producers are free to compete on price as well as quality and information on the latter is lacking or poor, it may be
profitable for providers to cut prices and lower quality. This scenario may make regulators leery of permitting price competition
in healthcare markets. Our results do not lend support to such a cautious approach. We find no evidence that Dutch hospitals
operating in more competitive markets reduced the quality of care – measured by rates of readmission after hip (knee)
replacements – they delivered after prices were deregulated by permitting the hospitals to negotiate prices with insurers.
2
,Aantekeningen college:
Competition in health care is fiercely debated…
“Competition has become the pariah of health care concepts. Only a few still want to use the word.”
“The coronavirus shows that we cannot leave health care to the market.”
“In health care, competition is an easy scapegoat. So you hear many politicians shouting that we should get rid of that. Arguing that
would solve all problems is simplistic wishful thinking. It sounds good and scores well electorally, but it does not do justice to the
complex reality of health care. In the health care sector, we need a combination of market incentives and government regulation.”
= central to industrial organization.
It is in the combination of market incentives and government regulation.
This HEPL-HE elective: theory & practice of competition (enforcement) in health care
• Functioning and performance of competitive health care markets
• Role of competition law in health care
• Challenges for policymakers and antitrust agencies
HEPL/HE: improving healthcare and health policy
• What challenges do health policy makers face?
• What options exist for health policy?
• How can economic thinking help understand the behaviour of patients, providers, payers and policy makers?
• How do different healthcare systems perform?
• How is policy shaped?
• What are the legal conditions for health policy?
• How should empirical research in healthcare be conducted and interpreted?
You have to know about the papers:
- What they are studying
- What their methodological approach is
- How to interpret the results they find.
Learning objectives
After participating in this lecture and studying the literature you will be able to:
1. formulate the key issues in the industrial organization of health care;
2. reflect on the differences between health care markets and stylized markets of economic models; and
3
, 3. reflect on quality determination in provider markets.
Industrial organization of health care: quality determination in provider markets
Industrial organization: a short introduction
What is industrial organization?
“To study industrial organization is to study the functioning of markets, a central concept in microeconomics.”
Industrial organization of health care markets
“No other market of substantial importance violates the requirements of perfect competition so radically.”
David Dranove & Mark Satterthwaite - Handbook of Health Economics, 2000, p.1096
Requirements for perfect competition
1. Standardized (homogenous) products
2. Price-taking behaviour
3. Free entry & exit
4. Perfect information
How are these violated in health care markets?
Result of perfect competition: what can we say about the market outcome: the outcome of the market is exactly what we want as
a public. So there is no market failure.
Government regulation is required, but …
… just like markets, governments are also far from perfect!
Hence, improving the functioning of health care markets is all about: how to navigate between market failure & government
failure?
Industrial organization of health care: key issues
Growing interest in the IO of health care
“There has been growing interest among economists in recent years in the industrial organization of health care markets. This is due in
part to the growing prominence of health-care markets in policy issues, the increasing availability of rich datasets on health care,
advances in economics methodology, and institutional changes that have led to a greater role and prominence for markets in health
care.”
Martin Gaynor, Kate Ho & Robert Town, JEL, 2015, p.236
Gaynor et al. (2015): “multistage model”
• Discussion of literature structured around 5 stages:
1. Quality determination in provider markets M1
2. Price and network determination in provider markets M2
3. Premium determination in insurance markets M4
4. Consumer choice in insurance markets M4
5. Incentives and provider referral desicions/consumer utilization M3
• Each stage has impact on equilibrium outcome & welfare
• Stages are related: “optimal choices in one stage are functions of expectations regarding the rest”
Hospital competition & quality: theory
• What mechanism could explain that hospital competition affects quality?
• Strategic choice for lower quality is unlikely
• More likely: lower effort in more concentrated hospital markets
• = mechanism in theory that competition when introduced has a different effect on providers in more concentrated
markets than it will have in less concentrated markets.
Public goals
- Accessibility
- Good quality
- Affordability
Markets with regulated prices
- Quality typically increases in price. So the higher the regulated price, the more likely is that quality is good.
• zej = eq. quality hospital j
• p = regulated price
• cq & cz = mc of quantity & quality
4
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