Health insurance and healthcare provider markets in the United States are characterized by high levels of market concentration, which has implications for patients in terms of cost, quality, access to care, and utilization. Given the United States' high level of healthcare spending and high utilization of costly technologies compared to peer countries, it is important to understand whether and how market dynamics contribute to overutilization. There is a small literature documenting that in more concentrated insurance markets, there are higher levels of overall utilization. These findings are consistent with two economic theories. The first is that concentrated insurance markets bust monopoly power and push the market towards a competitive outcome by negotiating lower prices that, because of downward-sloping demand, lead to higher utilization. The second is that providers facing a decrease in price induce demand in order to maintain a higher income. Broadly, this proposed research will expand on the existing literature by exploring the dynamics underlying the relationship between insurance market concentration and volume.
The first aim will test whether there are differences in the effect of insurance market concentration on utilization by the level of provider market concentration, which would be expected if the monopoly-busting hypothesis holds.
The second aim will test whether there is a spillover effect between insurance market concentration and Medicare volume, which would be expected under a demand-inducement hypothesis, as inducement behavior would affect both commercial and Medicare patients.
The third aim will use the financial incentive associated with auxiliary imaging services to test for demand inducement for imaging procedures.
Each aim contributes to a better understanding of the underlying dynamics that explain the existing empirical findings, which is a key step towards identifying whether policy interventions that target supply- or demand-side behaviors might lead to increased efficiency and decreased costs. For each of these aims, empirical models will regress a market-level measure of utilization on measures of insurance and provider market concentration and other potentially confounding variables. While these cross- sectional models will be supplemented by longitudinal sensitivity analyses, the endogeneity of market concentration, which is likely correlated with other factors contributing to healthcare utilization, will be addressed by using a set of instrumental variables to create measures of predicted market concentration. The three primary data sources used in these analyses are HealthLeaders-Interstudy data, the Truven MarketScan Database of Commercial Claims, and Medicare Claims Research Identifiable Files
The United States continues on a trend of high and increasing healthcare costs, high and increasing healthcare market concentration, and health outcomes that are incommensurate with the level of spending. This research explores whether, how, and why increases in insurance market concentration contribute to increases in the utilization and overutilization of healthcare and pharmaceutical services for privately insured patients and, further, the potential spillover effects of these increases on Medicare patients. Identifying the underlying supply- and demand-driven dynamics of these relationships is a key part of understanding how to design policy responses that increase efficiency and reduce both private and government spending.