Do Physicians Possess Market Power?

We study the degree to which greater physician concentration leads to higher service prices charged by physicians in the commercially insured medical care market. Using a database of physicians throughout the United States, we construct physician-firm concentration measures based on market boundaries defined by fixed driving times, which we label the fixed-travel-time Herfindahl-Hirschman index. We link these concentration measures to health insurance claims. We find that physicians in more concentrated markets charge higher service prices; a physician in the 90th percentile of market concentration will charge 14–30 percent higher fees than a physician in the 10th percentile.

Our estimates imply that physician consolidation has caused about an 8 percent increase in fees on average over the last 20 years and substantially higher increases in concentrated markets.