Description:

Speaker: Hyein Cho

Title: Vertical Integration between Healthcare Providers and Insurers: Efficiency vs. Foreclosure

Abstract:
Vertically integrated firms may conduct transactions internally to either reduce transaction costs or extend market power through foreclosure. Despite having opposing welfare effects, they are often analyzed independently. I study how firms choose the extent of internal transactions in the context of vertical integration between healthcare providers and insurers in the U.S. healthcare industry. I first develop a measure of care delivery concentration based on a Herfindahl-Hirschman index. Using a mover's design in the Massachusetts individual market, where three out of nine insurers are vertically integrated, I find that vertical integration increases care delivery concentration by one standard deviation. I document that the increase is driven by enrollees seeing fewer specialists and a larger share of care being provided by the integrated provider group. To analyze whether this increased concentration comes from efficiency gains or foreclosure motives, I build and estimate a physician referral model.