February 17, 2021
In the U.S., providers have tried to increase their leverage over insurers through consolidation—including hospital mergers, vertical integration of hospitals and physician practices, and agglomeration of physician practices into larger multi-specialty groups. But even if doctors and hospitals do not merge, they might still improve their position through collective bargaining. A recent economic case study of such collusion in Chile published in the RAND Journal of Economics and written by LDI Senior Fellow Juan Pablo Atal and Jorge Alé-Chilet and shows prices can increase dramatically, with serious consequences for patients.
The authors study the experience of a trade association of gynecologists in Chillán, Chile. For years, gynecologists in Chillán believed private rates were too low. In 2011, 26 out of 29 gynecologists in the city formed the Gynecologists’ Association of Ñuble. The next year, association members simultaneously canceled their contracts with private insurers, set a new minimum fee for office visits, and named a single representative for all future negotiations. The effect on office visit prices, consumer out-of-pocket expenditures, and provider revenue were large and immediate. Prices for office visits rose by 80%, and patient out-of-pocket costs doubled as coinsurance rates also increased. Consequently, provider profits more than quadrupled. In 2013, the government investigated the association for anti-trust offenses and shut it down in 2016. These results have significant implications for the FTC, which is reviewing similar arrangements in the U.S., as well as value-based payment initiatives, which are associated with provider consolidation.