Collaborative Research: The Influences of Market Power, Mergers, and Provider Incentives on the Cost and Quality of Healthcare: The Case of Dialysis

Brigham Young University, Provo UT

Investigators

Abstract

This award funds research in how competition between firms affects both the price and quality of a key health care service. The PIs will investigate how changes in the dialysis industry affects firm strategies, Medicare costs, and patient outcomes. The project will use a very large data set to test hypothesis drawn from the economic theory of firm competition. The research has three distinct components. The first part focuses on how mergers and acquisitions affect firm strategy in this industry and the consequences for patient outcomes. The second component evaluates how regulations that affect the construction of new facilities influence market structure as well as patient outcomes. The third part analyzes a payment reform instituted by Medicare that reduced the incentives to over-prescribe injectable drugs, which again may have affected both Medicare's costs and patient's outcomes. Understanding the market for dialysis services is important for several reasons. Dialysis is an important component of health insurance costs; Medicare's annual total reimbursements for dialysis amount to about 1% of the entire federal budget. High quality dialysis care improves patients' lives. Finally, understanding how changes in competition and in Medicare policies have affected the dialysis market will give us new knowledge about how robust competition and sensible regulation and Medicare reimbursement policies may be able to reduce costs and improve patient outcomes. The research team will use claims data from the entire universe of U.S. dialysis patients between 1998 and 2014; during this time period the industry became more concentrated. The projects funded by this award look at three different aspects of consolidation in the dialysis industry. The first studies how large dialysis chains have transferred their corporate strategies to the numerous independent facilities they acquired, which ultimately can affect the cost and quality of their treatments. The second develops a structural model of dialysis firms' entry, exit, and acquisition decisions to (i) understand how market structure and regulation affect dialysis care and (ii) estimate the impact of counterfactual policies, such as blocking mergers or relaxing Certificate of Need laws. The third examines how Medicare's reimbursement policies shape dialysis facilities' behavior, focusing specifically on a reform in 2011 that changed Medicare's reimbursement scheme for injectable drugs from a per-dose payment to a bundled payment. The team will use a novel instrumental variable strategy to provide the first causal evidence in the literature about whether the bundled payment policy resulted in lower drug doses, reduced costs and improved outcomes. The project advances the economics literature on market power, merger analysis, and provider incentives in health care. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.