The effects of market structure and bargaining position on hospital prices

J Health Econ. 1992 Oct;11(3):217-33. doi: 10.1016/0167-6296(92)90001-h.


PPOs and HMOs have gained widespread acceptance due in part to the belief that excess capacity and competitive market conditions can be leveraged to negotiate lower prices with health care providers. We investigated prices obtained in different types of markets by the largest PPO in California. Our findings indicate that greater hospital competition leads to lower prices. Furthermore, as the importance of a hospital to the PPO in an area increases, the price rises substantially. Our testing of alternative methods for defining hospital geographic markets reveals that the common practice of using counties to define the market leads to an underestimate of the price-increasing effects of a merger.

Publication types

  • Research Support, Non-U.S. Gov't
  • Research Support, U.S. Gov't, Non-P.H.S.
  • Research Support, U.S. Gov't, P.H.S.

MeSH terms

  • Blue Cross Blue Shield Insurance Plans / economics
  • Blue Cross Blue Shield Insurance Plans / statistics & numerical data
  • California
  • Catchment Area, Health / economics
  • Catchment Area, Health / statistics & numerical data
  • Contract Services / economics*
  • Economic Competition*
  • Fees and Charges / statistics & numerical data*
  • Financial Management, Hospital / economics
  • Financial Management, Hospital / statistics & numerical data*
  • Health Services Research
  • Models, Econometric
  • Preferred Provider Organizations / economics*
  • Preferred Provider Organizations / statistics & numerical data
  • Referral and Consultation / economics
  • Regression Analysis