Description:

Speaker: Hyein Cho

Title: "Vertical Integration, Endogenous Quality, and Foreclosure: Evidence from Provider-Sponsored Health Plans"

Abstract: Vertical integration may align investment incentives, improving product quality. However, it may incentivize firms to exploit their market power and foreclose competitors. I study this quality-foreclosure tradeoff in the US provider-sponsored health plans industry, where hospitals vertically integrate with insurers to provide health insurance products. I find that vertically integrated insurers and hospitals both choose higher quality, but are part of a smaller network, consistent with foreclosure. To quantify the tradeoff, I develop a model of insurer and hospital quality investment and pricing. Preliminary structural estimates show that vertically integrated insurers have lower marginal costs and higher margins, which increases their returns from quality investment. The focus of the talk will be to present the empirical model, preliminary estimates, and next steps.