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Title:The effect of competition in the healthcare industry
Author(s):Sun, Lingling
Director of Research:Deltas, George
Doctoral Committee Chair(s):Deltas, George
Doctoral Committee Member(s):Perry, Martin; Reif, Julian; Lemus, Jorge
Department / Program:Economics
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Medicare Advantage
Abstract:This dissertation examines a number of issues related to competition in the healthcare industry. In the first chapter, I estimate the supply and demand behavior of participants in the MA market by utilizing the most recent available data. I use the estimated model to quantify the welfare effects of two major changes in the MA market. The first is a possible change in the market structure due to a proposed and currently challenged merger between two major insurance firms. The second is a change to the payment rules due to the introduction of the Quality Bonus Payment (QBP) as part of the Affordable Care Act (ACA), which was intended to reduce overpayments made to MA plans and create incentives for quality improvement by basing payments on the plans’ quality ratings. By conducting several counterfactual analyses, I estimate that the merger would lead to a 5% decrease in consumer surplus, and that costs would need to decrease by at least 9% in order to bring consumer welfare back to the pre-merger levels. I also find that quality increases after the introduction of the QBP were enough to offset lower payments made to plans, which allowed the government to reduce spending without lowering consumer surplus. In the second chapter, I examine whether competition in the MA market leads to higher plan quality. A linear mixed model as well as an ordinal logistic regression are used to measure the effect of competition levels on a plan’s quality rating. The results show that plans in more competitive counties are more likely to have higher quality ratings. In the third chapter, I study the pricing effects of mergers in the generic drug market by looking at a case study of a merger between two major pharmaceutical firms, Actavis and Watson Labs, which have a wide range of overlapping products. In order to remedy market power increases as a result of the merger, divestitures were required in 21 product markets. Unlike previous literature, I examine two types of markets in which the merging firms were present, markets that involve divestitures and markets that do not. Examining markets involving divestitures allows the cost efficiency effect to be measured without any confounding market power effect. By using retail and wholesale data I compare the price changes of the merging parties with different control groups after the merger. I find that there was significant cost efficiency realized in a year following the merger and that this effect dominates the market power effect in non-divestiture markets. I also find that divested products experienced a cost increase after the ownership change.
Issue Date:2018-04-13
Rights Information:Copyright 2018 Lingling Sun
Date Available in IDEALS:2018-09-04
Date Deposited:2018-05

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