Industrial Organization Commons^™

Bargaining In Hospital Merger Models, David J. Balan, Keith Brand

David J. Balan

Hospital prices for commercially-insured patients are generally set through bilateral negotiations with health insurance companies. Reflecting common industry practice, contemporary models of hospital/health insurer bargaining usually assume that multi-hospital systems bargain on an all-or-nothing basis. However, hospitals within systems may bargain separately, and a commitment to do so is sometimes put forward as a remedy for an otherwise anticompetitive merger. We analyze and compare the merger-induced changes in equilibrium prices in a Nash Bargaining framework under these two modes of bargaining. We show that, while the magnitude of price effects under either mode depends critically on the degree of pre-merger …