Three Essays on Health Care Cost Containment

This dissertation consists of three separate but closely related chapters, all focusing on health care cost containment. It primarily uses MarketScan data, a large data set on the U.S. privately insured population, from Truven Health Analytics. The first chapter briefly discusses the problem of rising health care costs and introduces the research questions that the remaining chapters seek to address. Recent consolidations among hospitals and health insurers have made U.S. health care markets less competitive, leading to some concerns. The second chapter uses inpatient claims data from 2005 to 2008 to examine the effects of hospital and insurer market concentration on actual transaction prices for inpatient hospital services. The findings indicate that hospital consolidation likely raised prices by about 2.6 percent (about $4.9 billion in annual hospital revenues from private payers) over the 2003-2008 period, while insurer consolidation likely depressed hospital prices by about 10.8 percent (about $20.7 billion in annual hospital revenues). The third chapter examines the impact of hospital market concentration on hospital care quality using panel analysis and inpatient claims data spanning the period 2003-2008. The results suggest that rising hospital concentration likely resulted in lower care quality for privately insured patients. Based on the observed increase in the average hospital concentration between 2003 and 2008, the estimate implies a 0.21 percentage point increase in the probability of AMI related deaths, which translates into about 6,175 life years lost and an economic cost of roughly $618 million in 2008 for the entire U.S. privately insured population.The idea that newer drugs are cost saving has been a debated topic in the health economics literature. The fourth chapter delves into the debate using new data and empirical methods. It uses the case of drug-taking patients diagnosed with hypertension over the 1999-2008 period to re-examine the question: Do newer drugs save more in nondrug spending than they cost? Overall, the obtained results show a lack of cost saving effect. While I find evidence that using newer monotherapy is associated with treatment substitution effect, the resulting expenditure reduction is generally not enough to "offset" the higher cost of newer drugs.