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Healthcare Contracting DOJ/FTC Healthcare Competition Healthcare Contracting DOJ/FTC Healthcare Competition

Healthcare Contracting DOJ/FTC Healthcare Competition - PowerPoint Presentation

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Uploaded On 2018-12-07

Healthcare Contracting DOJ/FTC Healthcare Competition - PPT Presentation

Workshop Professor Fiona Scott Morton Yale School of Management Assumptions CostsMargins vary AMC versus community hospital Brain surgery versus broken leg Service versus imaging Why Political constraints Historical accident Market size and fixed entry costs ID: 737967

high cost provider hospital cost high hospital provider consumers plan market tiering classes price costs competing plans network anti

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Presentation Transcript

Slide1

Healthcare ContractingDOJ/FTC Healthcare Competition Workshop

Professor Fiona Scott Morton

Yale School of ManagementSlide2

AssumptionsCosts/Margins varyAMC versus community hospitalBrain surgery versus broken legService versus imagingWhy? Political constraints? Historical accident? Market size and fixed entry costs?Situation gives insurer incentive to purchase cheaper items from one provider

– which is a form of a narrow networkSlide3

Market powerSuppose a provider has market powerCould bargain for higher price from insurerCould bargain for certain contractAnti-tiering/anti-steering

Bundling (all-or-nothing contracting)

Carve-outs

Gag clause

Exclusive dealing (United Regional Wichita Falls)

Hard to

do (?)

if high deductible health planSlide4

Harm?What would be possible theories of harm from anti-tiering / anti-steering / bundling provisions?Foreclosure: prevent growth of, or economies of scale in, competing hospital or providerMonopolization: prevent entry of competing imaging firm or provider

Higher prices: competing provider knows it cannot grow so chooses a high priceSlide5

Efficiencies?What would be possible efficiencies from these contracts?Cross-subsidization is necessary…Provider does not know true profitability of each service; needs to sell whole bundle in order to be sure costs are coveredProvider needs referrals from one service to another

Provider needs scale in order to keep average costs down

Unrestricted network is more choice for consumers

Consumers will be confused by plans with restrictionsSlide6

Effect of wide networksObserved in pharma: Part DProtected classes (antiretrovirals, antidepressants, antipsychotics,anticonvulsants, immunosuppressants, and antineoplastics

) and “pharmacy key drug types”

Can show price effects (Duggan and Scott Morton, 2010 AER)

Competition stimulated in other classes, prices fall

No price change in protected classes and PKDT

Recent attempt to reduce the number of protected classes in Part D

Recent attempt to allow any willing provider to participate in Part D pharmacy networksSlide7

New researchMark Shepard, Harvard PhD student on the market this yearA high-cost hospital with market power that forbids tiering may result in insurer omitting the hospital entirely from its narrow network plan. Consumers then choose between high and low cost plans

Consumers who like high-cost care sign up for high-cost plan and use lots of expensive care. Plan costs rise.

The next period, more consumers switch to low cost plan…repeat.

Death spiral for high-cost plan => high-cost hospital has no business

Tiering

permits the low-cost plan to include the high-cost hospital on an expensive tier. To avoid the scenario above, high-cost hospital may want

tiering

Consumers value extra choice

In equilibrium, less adverse selection, high-cost hospital can be in all plans