Gaynor M & Haas-Wilson D, (1999)

‘Change, Consolidation and Competition in Health Care Markets’

Journal of Economic Perspectives 13, pp. 141-164

A summary of the changes in the structure of the health care industry in the U.S., with potential implications for competition, efficiency and public policy.
The three key developments are:
- The rise of ‘managed care’, which has increased price competition in healthcare markets.
- Increasing horizontal consolidation among insurers and providers.
- A trend away from vertical integration (i.e. fewer HMOs or hospitals owning their own physician centres).
The rise of HMOs makes definition of geographic and product markets more problematic, as HMO members are not free to choose any provider.
A certain degree of horizontal consolidation can improve efficiency through e.g. economies of scale.
Vertical consolidation could potentially improve monitoring of quality and utilisation.
For horizontal or vertical consolidation to have anticompetitive effects in health care markets, there must be barriers to entry in those markets. There has been little empirical research into whether or not this is the case.
The authors then review the evidence on competitive behaviour by firms in health care markets.