There is a large empirical literature documenting the existence of a positive correlation between the number of times a hospital performs a given surgical procedure and the rate of good health outcomes achieved by patients at that hospital receiving that procedure. Typically, it is found that mortality is lower in hospitals which perform more of a given procedure. This result has been found for a wide variety of different procedures, time periods, and locations (Birkmeyer et al. 2002, Halm 2002, Shahian and Normand 2001). The two leading explanations for this correlation are the “practice makes perfect ” and “selective referral ” effects (Luft, Hunt and Maerki 1987). In the practice makes perfect hy-pothesis, either learning by doing or quality enhancing scale economies cause large hospitals to provide better quality care, improving outcomes. In the selective referral hypothesis, hospitals with higher quality attract greater demand and therefore have a greater volume of patients. The direction of causality matters for policy. If volume causes outcome, then policies supporting centralization of procedures in a few facilities may make sense. Hospitals that specialize in treating one or a few conditions may have the benefit of producing better

Objective. To determine the extent to which managed care has led to consolidation among hospitals and physicians. Data Sources. We use data from the American Hospital Association, American Medical Association, and government censuses. Study Design. Two stage least squares regression analysis examines how cross-section variation in managed care penetration affects provider consolidation, while controlling for the endogeneity of managed-care penetration. Specifically, we examine inpatient hospital markets and physician practice size in large metropolitan areas. Data Collection Methods. All data are from secondary sources, merged at the level of the Primary Metropolitan Statistical Area. Principal Findings. We find that higher levels of local managed-care penetration are associated with substantial increases in consolidation in hospital and physician markets. In the average market (managed-care penetration equaled 34 percent in 1994), managed care was associated with an increase in the Herfindahl of.054 between 1981 and 1994, moving from.096 in 1981 to.154. This is equivalent to moving from 10.4 equal-size hospitals to 6.5 equal-sized hospitals. In the physician market place, we esti-mate that at the mean, managed care resulted in a 14 percentage point decrease of physicians in solo practice between 1986 and 1995. This implies a decrease in the percentage of doctors in solo practice from 38 percent in 1986 to 24 percent by 1995. Key Words. Managed care, consolidation, mergers, group practice, antitrust There has recently been substantial consolidation among health-care providers in the United States. In 1980, most hospitals were freestanding, independent organizations. By 1996, 40 percent of all community hospitals were members of a system and 26 percent were members of networks (American Hospital Association 1998). In the mid-1980s, more than 40 percent of all physicians were in solo practice. By 1997, that figure had fallen to 26 percent (American Medical Association 1999). Most physicians now work in settings with several physicians, such as group practices, hospitals, or clinics. It is tempting to suppose that this consolidation is the direct result of the growth of managed care. The two have certainly occurred at the same time.

The Centre for Market and Public Organisation, a Research Centre based at the University of Bristol, was established in 1998. The principal aim of the CMPO is to develop understanding of the design of activities within the public sector, on the boundary of the state and within recently privatised entities with the objective of developing research in, and assessing and informing policy toward, these activities. Centre for Market and Public Organisation

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selection, capitation, incentives, risk adjustment. Diverse provider payment systems create incentives that affect the quantity and quality of health care services provided. Payments can be based on provider characteristics, which tend to minimize incentives for quality and quantity. Or payments can be based on quantities of services provided and patient characteristics, which provide stronger incentives for quality and quantity. Payments methods using both broader bundles of services and larger numbers of payment categories are growing in prevalence. The recent innovation of performance-based payment attempts to target payments on key patient attributes so as to improve incentives, better manage patients, and control costs. 2 There are many ways that health care providers can be paid. In India, government physicians are paid a salary and in Canada physicians are generally paid according to a government-regulated fee schedule. In the Netherlands however, office-based physicians receive capitated payments for much of their revenue. Similar variations are seen in

Recent empirical studies point to the need for a model of bilateral market power between health plans and provider organizations. We develop such a model and use it to analyze the impact on cost and access of alternative contractual relationships between plans and providers. The plans differentiate themselves through distinct, albeit overlapping, provider networks of specialized, complementary inputs (physician groups and hospitals). We analyze subgame perfect strategic pricing equilibria for a range of possible contractual relationships between the upstream providers and the downstream insurers, including different internal organizational structures of vertically integrated health plans, such as group- and staff-model HMOs and PPOs. A decentralized market structure produces inefficiencies from pricing coordination failures. Integration may be able to overcome pricing inefficiencies, with performance affected by the internal organization of vertically integrated health plans. Providers and MCOs do not achieve maximum net revenue when they are monopolies or monopsonies, but rather at an intermediate level of market power. JEL CLASSIFICATION: I11.

This paper provides field evidence on how price framing affects consumers ’ decision to switch health plans. In 2009 German federal regulation required insurers to express pre-mium differences between standardized health plans in absolute euro values relative to a federal reference price, rather than in percentage point payroll tax differences. Repre-sentative individual level panel data and aggregated health plan level panel data on the universe of health plans show that the reform strongly increased enrollees ’ willingness to switch plans, with demand elasticities increasing fourfold. The salience of premium differ-ences and the default premium are obviously key driving forces in the decision to switch insurers.

Festschrift conference in October 2002 for helpful comments. Ilya Berger provided

Assessing competition in hospital care markets: the importance of accounting for quality differentiation

I am honored to have worked with my co-supervisors, Professors Paul Wilson and David Sibley. From the beginning of my graduate career, Paul Wilson has provided invaluable advice, support, and assistance. He sparked my interest for econometrics and health economics and has encouraged me to explore intriguing areas of both fields. In addition, he has been a great source of information on the economics profession in general and has been a wonderful mentor. For his unending patience, effort, and confidence in me, I am most appreciative. I am very grateful to David Sibley for his insight into economic modeling and his help with the job market. Many thanks to my dissertation committee members for their comments, especially Jim Burgess, for challenging me to think about health economics from a different perspective. This research, particularly Chapters 2 and 4, would not have been possible