Public policy and vertical relationships in the healthcare market
OA Version
Citation
Abstract
In complex, rapidly evolving healthcare markets, vertical relationships play an increasingly important role in pricing and health care delivery, creating or eliminating barriers to market efficiency. Despite their importance, few studies have addressed how vertical relationships affect care coordination and utilization and how public policies affect the market through those relationships. This dissertation focuses on two types of vertical relationships---the price negotiation between insurers and health care providers and the relationship between health care organizations and physicians.
Chapter 1 examines the effect of medical loss ratio (MLR) regulation on insurer pricing behavior in light of insurer-provider price negotiation. Such regulation could disincentivize insurers from efficient cost-cutting, resulting in higher health service prices and consumer welfare loss. Using a Nash-in-Nash bargaining model with a regulation constraint, I find that MLR regulation rules out price bargaining equilibria with low health service price. The empirical examination of the Affordable Care Act MLR regulation shows that the regulation significantly increases medical cost for non-compliant insurers. Either restricting health service prices or replacing the regulation with a low-margin public option could keep prices low and improve consumer welfare.
Chapter 2 utilizes patient changes of their primary care physicians (PCP) to examine the effect of health care organization boundaries on patient healthcare utilization. We define a visit-based organizational care concentration metric to measure how patient health care utilization spreads across organizations. Applying that metric to Medicare data, we capture the substantial variation of organizational care concentration across physicians and regions. Leveraging on PCP changes due to the exit of original PCPs, we find that patients who switched to PCPs with higher organizational care concentration experience a significant decrease in their total healthcare utilization without significant changes in quality of care.
Chapter 3 examines the consequences of vertical integration between hospitals and physician practice groups, which could incentivize physicians to refer more patients to hospitals and induce higher medical spending. Employing an event-study framework and a discrete choice model, we find consistent and robust evidence that vertical integration increases the probability of choosing hospital-based facilities for outpatient surgical procedures, increasing both medical spending and travel distances.