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Market Power--Healthcare Products, Pricing and Providers

Paper Session

Friday, Jan. 5, 2024 8:00 AM - 10:00 AM (CST)

Grand Hyatt, Bonham E
Hosted By: Health Economics Research Organization
  • Chair: Christopher (Kitt) Carpenter, Vanderbilt University

How Power Shapes Behavior: Evidence From Physicians

Manasvini Singh
Carnegie Mellon University


Power, defined as the asymmetric control of valued resources, affects most human interactions.
Yet there is little observational evidence on how power affects real-world behavior and resource
allocation. We examine this question using the power differential in the doctor-patient encounter:
while it favors the physician in the clinical setting, powerful patients may be able to reduce this
asymmetry and influence physician behavior. We exploit the quasi-exogenous assignment of 1.5
million patients to physicians in US military emergency departments, using the difference in their
military ranks to measure their power differential. We find that power confers nontrivial advantage
to its possessor: “high-power” patients (those who outrank their physician) receive greater physician
effort and have better outcomes than equivalently-ranked “low-power” patients. Furthermore,
within-physician effort is higher for patients recently promoted than those about to be promoted.
We document negative spillovers from a physician’s high-power patients to their concurrently seen
low-power patients, as well as predictable interactions of such power dynamics with doctor-patient
concordance on race and sex. While power-driven variation in behavior is often undesirable, it is
especially concerning in healthcare where it can harm society’s most vulnerable patients

The Dynamic Effects of Health Care Price Reform

Parker Rogers
Indiana University


We study how government price reforms affect innovation, market structure, and product quality within the health care sector. We exploit a Medicare payment reform that reduced expenditures on certain types of durable medical equipment (DME) by 66% while leaving other types unaffected. We find that manufacturers filed 29% fewer patents and introduced 22% fewer new models in DME types affected by the price reform relative to those that were unaffected. Additionally, patents filed after the price reform increasingly focused on ``process'' rather than ``product'' innovation, consistent with increased market demand for lower-cost products. The market structure was also affected, with 25% fewer manufacturers entering affected product markets and a 65% increase in outsourcing to foreign companies. The shift towards cost-cutting, both in patenting and supply chain restructuring, was associated with increased device repair rates among Medicare beneficiaries and reported adverse events. Firms that outsourced to foreign manufacturers experienced the highest increase in adverse events. While the Medicare price reform generated substantial savings, these gains were dampened by the adverse effects on innovation, market structure, and product quality in the long run. Our findings highlight the importance of considering dynamic impacts when designing policy reforms.

The WIC Competitive Bidding Contract in the Infant Formula Market

Xi Wang
University of Georgia


The Women, Infants, and Children nutritional program (WIC) serves as an intermediary in the infant formula market, providing vouchers to its participants -- low-income mothers and their infants -- and allowing them to obtain specific brands of infant formula for free. To determine these brands, each state's WIC agency exclusively contracts with a single manufacturer in exchange for rebates and an agreement to abide by pricing regulations. I quantify the effect of this purchasing program on consumer surplus and government expenditure; and explore an alternative approach to subsidize WIC participants by giving them a discount on any brand. I do this by estimating a demand model where preferences and prices paid vary across WIC and non-WIC participants, and a supply model where the contract manufacturer faces price regulations. I find that removing the WIC program, in a lassize-faire counterfactual, raises prices. This is because price regulation forces the contract manufacturer to set a lower price which strengthens competition. Though the current WIC purchasing process yields a higher aggregate consumer surplus than an alternative discount coupon policy, it also increases the WIC program's expenditures and reduces the total welfare of the market.

The Effect of a Large Prescription Opioid Diversion Event on Opioid Mortality in the U.S.

Felipe Lozano-Rojas
University of Georgia


In December 2007 a massive spike of prescription opioids surged suddenly into retail pharmacies in four Southeastern U.S. states. This spike, which took place entirely over a two-week time span, was restricted to certain counties in Florida, along the Gulf Coasts of Alabama and Mississippi. During the two weeks in December in question 78 “spike counties” experienced an average increase in opioid deliveries of 313% over January to November 2007 average levels, with one Mississippi county experiencing a 1300% increase. In total, we estimate that these 78 counties experienced a surge of over 3.4 billion morphine milligram equivalent units - more than 147 million standard doses - valued at $117 million using the average opioid pharmacy Wholesale Acquisition Cost in 2007. The pattern of facts available is consistent with the hypothesis that Colombian drug cartels became suddenly unable to launder large amounts of physical cash at the end of 2007 at a time when their capacity to supply eastern US heroin markets was failing and therefore used their excess physical cash to acquire prescription opioid products which could then be diverted to the illicit drug market in the US east of the Mississippi River. Importantly, any relative increase in prescription opioids (manufactured with very tight therapeutic windows) in the illicit market would be expected to at least partially displace heroin (manufactured with varying potency which cannot be known prior to consumption). So, the spike in diversion would have made the illicit drug supply safer on average – thus amounting to an unplanned harm-reduction shock for prior heroin or other non-prescription opioid users.

We estimate novel difference-in-differences models of substance-specific opioid mortality, using counties west of the Mississippi River as controls, and the geographic distance to a spike county as the intensity of treatment. We find that in the two

David Chan
Stanford University
Alice Chen
University of Southern California
Diego Jimenez Hernandez
Federal Reserve Bank of Chicago
Christopher (Kitt) Carpenter
Vanderbilt University
JEL Classifications
  • I1 - Health
  • L0 - General