Carlos Noton, Universidad de Chile

“Vertical Integration between Hospitals and Insurers”

Coautoreado con José Ignacio Cuesta y Benjamín Vatter

Abstract: The welfare effects of vertical integration are ambiguous. Cost efficiencies and the elimination of double marginalization may offset increases in market power and incentives to raise rivals’ costs. To study the effects of vertical integration between insurers and hospitals, we develop a model of bargaining and competition in the health care market. The model shows that vertically integrated firms have incentives to increase negotiated hospital prices to rivals to steer demand to their integrated partners. We estimate the model using administrative data on membership and claims data from the Chilean private health market, where vertically integrated hospitals account for almost half of all admissions. Using our structural estimates, we show that steering incentives are significant and that vertical integration decreases welfare in our setting. However, vertical integration increases welfare under counterfactual cost efficiencies and consumer price sensitivity