Bargaining and Hospital Pricing
While reduced-form merger studies provide compelling evidence that consolidation raises hospital prices, they are less informative about the mechanisms through which prices are set and how alternative market structures would affect outcomes. To address these questions, a large literature models hospital prices as the outcome of bilateral bargaining between hospitals and insurers. In these models, negotiated prices depend on the relative bargaining power of each side, the value of inclusion in insurer networks, and the availability of alternative providers and plans.
The bargaining framework provides a structural interpretation of hospital pricing that links market structure, network design, and prices in a unified way. By explicitly modeling negotiations, these approaches allow researchers to simulate counterfactual scenarios—such as mergers that have not occurred, changes in network inclusion, or regulatory interventions—and to decompose price effects into changes in bargaining leverage versus underlying costs or demand. This makes bargaining models particularly attractive for policy analysis, despite their stronger assumptions relative to reduced-form designs.
We introduce this literature by focusing on empirical models that estimate negotiated prices and bargaining parameters using detailed claims and network data. These papers illustrate how bargaining power varies across hospitals and insurers, how market concentration affects negotiated outcomes, and how structural models complement reduced-form evidence from merger retrospectives. Together, they provide the analytical foundation for understanding hospital pricing in modern healthcare markets.
Potential papers for presentation today include:
- Gowrisankaran, Nevo, and Town (2015) — a canonical model of insurer–hospital bargaining and negotiated prices
- Lewis and Pflum (2015) — evidence on bargaining power and system-level pricing effects
- Ho and Lee (2019) — bargaining with threats of exclusion