Researchers in health care financing have claimed that large private insurers like Blue Cross frequently exercise monopsony power to obtain discounts from normal hospital charges. They claim that the monopsony power derives from a large Blue Cross share of a given hospital's patients. This use of market power has been alleged to be an important cause of hospital 'cost shifting', whereby hospitals offset the discount by raising charges to less powerful customers. This paper re-examines both theoretically and empirically the conditions necessary for a private insurer to extract discounts from a hospital. We demonstrate that the theoretical conditions necessary for Blue Cross to force a discount do not exist in the Indiana market. Using revenue data from 110 Indiana hospitals we reject the traditional claim that Blue Cross pays less than other insurers as a function of market share.
ASJC Scopus subject areas
- Health Policy
- Public Health, Environmental and Occupational Health