Transparency and Negotiated Prices: The Value of Information in Hospital-Supplier Bargaining

Matthew Grennan, Ashley Swanson
NBER Working Paper No. 22039
Issued in February 2016
NBER Program(s):   HC   IO

Abstract:

We empirically examine the role of information in business-to-business bargaining between hospitals and suppliers of medical technologies. Using a new data set including all purchase orders issued by over sixteen percent of US hospitals 2009-14, and differences-in-differences identification strategies based on both timing of hospitals’ joining a benchmarking database and on new products entering the market, we find that access to information on purchasing by peer hospitals leads to reductions in prices. These reductions are concentrated among hospitals previously paying high prices relative to other hospitals and for products purchased in relatively large volumes, and we demonstrate that they are consistent with hospitals resolving asymmetric information problems between themselves and their suppliers. We estimate that the achieved savings due to information provision amount to 26 percent of the savings we would observe if all hospitals paying above average prices for a given product at a point in time were to instead pay the average price. These results have implications for understanding the economic effects of introducing more information into relatively opaque business-to-business markets, including the emerging role of intermediaries offering benchmarking data and policymakers’ calls for transparency in medical device pricing.

Transparency and Negotiated Prices- The Value of Information in Hospital-Supplier Bargaining

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