This paper examines the effects of hospital and physician strategic alliances. In the US, nearly two-thirds of hospitals have formed alliances with physician organizations. These alliances range from loosely-networked to exclusive models and may reflect attempts to improve quality, lower costs, or increase bargaining power with insurers. METHODS: This paper uses five years of hospital-level financial and patient-level discharge data from Florida, Wisconsin, and Arizona. Hospitals are observed before and after they form alliances. First, the paper estimates reduced-form equations of the impact of strategic alliances on hospital prices, quality measures, and costs, taking advantage of panel data methods and differencing. Second, the paper estimates a structural model, breaking down a) the impact of strategic alliances on the price elasticity of demand for hospital care and b) supply-side effects of strategic alliances in combination with hospital horizontal integration. The supply side analysis uses the demand elasticities to derive predicted hospital margins, using different equilibria assumptions by treating hospitals as individual profit-maximizers and then as jointly pricing members of hospital chains. This analysis also assesses whether strategic alliances facilitate horizontal price coordination. This method is particularly suited for simulations of market changes and allows for a rich analysis of for-profit and not-for-profit hospitals. RESULTS: Reduced form results show no evidence of transaction or production cost efficiency gains from hospital-physician strategic alliances. However, there are significant increases in hospital prices from exclusive strategic alliances with physicians. Effects stronger in less competitive hospital markets and among for-profit hospitals. Overall the effect appears welfare-reducing.
Learning Objectives: Participants in this session will learn two different approaches to analyzing hospital strategies.
Keywords: Competition, Performance Measurement
Presenting author's disclosure statement:
Organization/institution whose products or services will be discussed: None
I do not have any significant financial interest/arrangement or affiliation with any organization/institution whose products or services are being discussed in this session.