An Analysis of Hospital Responses to the Introduction of Bilateral Price Bargaining

The Health Care Reform Acts of the mid-1990s in New Jersey and New York removed the centralized rate setting systems determining the prices paid to individual hospitals by private insurers and allowed insurers to set rates through bilateral bargaining with hospitals. We investigate hospital responses to this deregulation. Several previous papers find evidence that the HCRA in New Jersey affected patient-level outcomes. We find little evidence that these translate to changes in broader measures such as the average number of services offered, patient mix and the services provided to many types of patients. Our results indicate that the Health Care Reform Acts may have introduced some competition to the hospital market without inducing hospitals to adopt broad strategies to increase their bargaining power at the expense of the quality of patient care.