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Buyer Power in Health Plan Mergers

Cory S. Capps
Journal of Competition Law and Economics
June 17, 2010

In light of recent increased policy attention directed toward health insurance, the next significant health plan merger is almost certain to receive close scrutiny from many quarters, including representatives of providers, such as the American Medical Association and the American Hospital Association, and the U.S. Department of Justice. In this paper, Dr. Capps reviews the key buy-side economic questions and analytic frameworks that are likely to be at the forefront in future investigations of health plan mergers. In particular, he explains how industry structure implies that shares of purchases from individual providers as well as area-wide shares of purchases are likely to inform antitrust analysis of potential monopsony harm in health plan mergers.He also discusses the appropriate treatment of government payers in calculating and assessing buy-side market shares. Dr. Capps concludes with a discussion of how competition and market power in downstream markets for the sale of commercial insurance interact with the potential exercise of monopsony power in upstream markets for the purchase of provider services.

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