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Hospital Procurement with Concentrated Sellers: A Case Study of Hip Prostheses

Author

Listed:
  • Charlotte Davies

    (Centre for Competition Policy and Health Economics Group, University of East Anglia)

  • Paula Lorgelly

    (Centre for Health Economics, Monash University)

Abstract

Procurement within the NHS is attracting increasing research and policy interest. However, most of the emphasis has been on the buyer (the NHS), with less attention paid to the behaviour of suppliers (often pharmaceutical companies). For medical devices very little is publicly documented about procurement and even less about the supplying industry. This paper uses a case study of artificial hip prostheses to indirectly explore how procurement choices are made within the NHS. We recognise the roles of the various players (patient, surgeon and hospital procurement department) when purchases are made from a potentially highly oligopolistic supplying industry. Using data from the National Joint Registry for England and Wales, we show that the supplying industry is indeed highly oligopolistic, with the potential for the exercise of market seller power. At the national level the NHS as a whole purchases from the equivalent of just four large sellers. However, typically individual hospitals are buying from only two, or in some instances one seller. Given this backdrop, we develop a theoretical framework explaining prosthesis choice, considering the roles and preferences of the patient, surgeon, hospital and supplier. This provides a set of hypotheses tested using an econometric model in which the diversity of prosthesis choice at the hospital level is explained by a vector of patient and hospital characteristics. This reveals little evidence that patient heterogeneity is a major determinant of diversity of procurement choices. More important are hospital size (which will be related to the number of surgeons), status of the hospital, recent NHS reforms and the potential role of the supplier. These findings provide a basis for future survey analysis of surgeons and hospital procurement departments designed to discover more directly how decisions are made and how suppliers bargain with hospitals.

Suggested Citation

  • Charlotte Davies & Paula Lorgelly, 2013. "Hospital Procurement with Concentrated Sellers: A Case Study of Hip Prostheses," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2013-13, Centre for Competition Policy, University of East Anglia, Norwich, UK..
  • Handle: RePEc:uea:ueaccp:2013_13
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    References listed on IDEAS

    as
    1. Cooper, Zack & Gibbons, Stephen & Jones, Simon & McGuire, Alistair, 2010. "Does hospital competition improve efficiency? An analysis of the recent market-based reforms to the English NHS," LSE Research Online Documents on Economics 28578, London School of Economics and Political Science, LSE Library.
    2. Davies, Stephen & Lyons, Bruce, 1996. "Industrial Organization in the European Union: Structure, Strategy, and the Competitive Mechanism," OUP Catalogue, Oxford University Press, number 9780198289739.
    3. Matthew Grennan, 2013. "Price Discrimination and Bargaining: Empirical Evidence from Medical Devices," American Economic Review, American Economic Association, vol. 103(1), pages 145-177, February.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Papanicolas, Irene & McGuire, Alistair, 2015. "Do financial incentives trump clinical guidance? Hip Replacement in England and Scotland," Journal of Health Economics, Elsevier, vol. 44(C), pages 25-36.

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    More about this item

    Keywords

    Medical devices; competition; concentration; diversification; oligopoly; buyer power;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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