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Researchers in health care financing have frequently claimed that Blue
Cross Plans obtain discounts (relative to other customers) from local
hospitals because of their large market share. Recently in this journal, we
questioned both the theoretical and the empirical basis for this widely
accepted argument.’ In the same issue Mark Pauly criticized our analysis in
an editorial.2 Pauly contends that Blue Cross ‘is certain to possess some
market power relative to other insurers’. More importantly, Pauly warns that
a Blue Cross Plan could use the increasingly popular Preferred Provider
Organization (PPO) as a vehicle to ‘exercise that market power in ways
contrary to overall welfare’.
Cross Plans obtain discounts (relative to other customers) from local
hospitals because of their large market share. Recently in this journal, we
questioned both the theoretical and the empirical basis for this widely
accepted argument.’ In the same issue Mark Pauly criticized our analysis in
an editorial.2 Pauly contends that Blue Cross ‘is certain to possess some
market power relative to other insurers’. More importantly, Pauly warns that
a Blue Cross Plan could use the increasingly popular Preferred Provider
Organization (PPO) as a vehicle to ‘exercise that market power in ways
contrary to overall welfare’.
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