Faculty Details

Photo of Martin S. Gaynor

Martin S. Gaynor

E. J. Barone Professorship of Economics and Health Policy

Full-time Faculty

Office: 241 Hamburg Hall
Email: mgaynor@andrew.cmu.edu
View curriculum vitae (.pdf)

Affiliations

Biography

Professor Gaynor's research focuses on competition in health care markets and on the role of incentive structures within health care. This is being investigated within the context of the current rapidly changing structure of health care markets, with implications for appropriate antitrust and regulatory policy in this area.

Professor Gaynor is a research associate of the National Bureau of Economic Research in Cambridge, Massachusetts and the Centre for Market and Public Organisation at the University of Bristol in the United Kingdom. Prior to coming to Carnegie Mellon, he was on the faculty of Johns Hopkins University. He has also taught at a number of other universities and was a visitor at the Institute of Economics of the Hungarian Academy of Sciences in Budapest, Hungary in 1991.

Professor Gaynor has served as a consultant to the Federal Trade Commission, U.S. Department of Justice, and the California Department of Corporations on antitrust issues. He has given testimony before the Federal Trade Commission and U.S. Department of Justice and the California State Senate and has participated in briefings for U.S. House of Representatives Staff. Professor Gaynor also serves on the editorial boards of the American Economic Review, Health Services Research, the International Journal of Health Care Finance and Economics, RandForums for Health Economics and Policy, Health Economics, Policy, and Law, and edited a symposium on incentives and competition in health care markets for the Rand Journal of Economics. He is a referee for numerous professional journals, and works with the National Science Foundation, Agency for Health Care Policy Research, National Institute of Mental Health, National Institute on Drug Abuse, Veterans Administration and National Endowment for the Humanities as an ad hoc grant reviewer.

Professor Gaynor is listed among the top 1,000 economists in the world and in Who's Who in America. He received the Kenneth J. Arrow Award for best published paper in health economics worldwide in 1995. He is a 1995 recipient of a Robert Wood Johnson Fellowship for research on antitrust and competition in health care markets. He also delivered the R. Allen Moran Memorial Lecture at Lehigh University in 1992, and received the FIRST Award (First Independent Research Support and Transition) given by the National Institute of Mental Health, 1990-1993.

Professor Gaynor received his bachelor of arts degree in economics from the University of California, San Diego, in 1977, a master of arts in economics from Northwestern in 1979 and a PhD in economics from Northwestern in 1983.Selected Publications

“Competition Among Hospitals,” with William B. Vogt, Rand Journal of Economics, Winter 2003, 34, 4, 764-785.

“Physician Incentives in HMOs,” with James B. Rebitzer and Lowell J. Taylor, Journal of Political Economy, August 2004, forthcoming.

"Are Invisible Hands Good Hands? Moral Hazard, Competition, and the 2nd Best in Health Care Markets," with Deborah Haas-Wilson and William B. Vogt, Journal of Political Economy, October 2000, 108, 5, 992-1005.

"Antitrust and Competition in Health Care Markets" (with William B. Vogt), Handbook of Health Economics, (Anthony J. Culyer and Joseph P. Newhouse, eds.), Amsterdam: North-Holland, 2000.

"Enter at Your Own Risk: HMO Participation and Enrollment in the Medicare Risk Market," with Jean Abraham, Ashish Arora, and Douglas Wholey, Economic Inquiry, July 2000, 38, 3, 385-401.

"Change, Consolidation, and Competition in Health Care Markets" (with Deborah Haas-Wilson), Journal of Economic Perspectives, Vol. 13, No. 1, pp. 141-164, Winter 1999.

"Moral Hazard and Risk Spreading in Medical Partnerships," with Paul J. Gertler, Rand Journal of Economics, Winter 1995, 26, 4, 591-613.

"Uncertain Demand, the Structure of Hospital Costs, and the Cost of Empty Hospital Beds," with Gerard F. Anderson, Journal of Health Economics, August 1995, 14, 3, 291-317.

"Issues in the Industrial Organization of the Market for Physician Services," Journal of Economics and Management Strategy, Spring 1994, 39, 1, 211-255.

"Equilibrium Misperceptions," with Paul R. Kleindorfer, Economics Letters, January 1991, 35:1, 27-30.

"Compensation and Productive Efficiency in Partnerships: Evidence from Medical Group Practice," with Mark V. Pauly, Journal of Political Economy, June 1990, 98:33, 544-573.

"Competition within the Firm: Theory Plus Some Evidence from Medical Group Practice," Rand Journal of Economics, Spring 1989, 20:1, 59-76.

 

Research Interests


Health Economics, Industrial Organization, Antitrust

Areas of Expertise


Health Economics, Competition in Health Care Markets, Health Care Antitrust, Health Policy

Education


B.A., Economics, University of California, San Diego, 1977
Ph.D., Economics, Northwestern University, 1983

Working Papers


What Do We Know About Competition and Quality in Health Care Markets?

The goal of this paper is to identify key issues concerning the nature of competition in health care markets and its impacts on quality and social welfare and to identify pertinent findings from the theoretical and empirical literature on this topic. The theoretical literature in economics on competition and quality, the theoretical literature in health economics on this topic, and the empirical findings on competition and quality in health care markets are surveyed and their findings assessed.

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Does the Profit Motive Make Jack Nimble? Ownership Form and the Evolution of the U.S. Hospital Industry

This paper examines the evolving structure of the U.S. hospital industry since 1970, focusing on how ownership form influences entry and exit behavior. We develop theoretical predictions based on the model of Lakdawalla and Philipson, in which for-profit and not-for-profit hospitals differ regarding their objectives and costs of capital. The model predicts for-profits would be quicker to enter and exit than not-for-profits in response to changing market conditions. We test this hypothesis using data for all U.S. hospitals from 1984 through 2000. Examining annual and regional entry and exit rates, for-profit hospitals consistently have higher entry and exit rates than not-for-profits. Econometric modeling of entry and exit rates yields similar patterns. Estimates of an ordered probit model of entry indicate that entry is more responsive to demand changes for for-profit than not-for-profit hospitals. Estimates of a discrete hazard model for exit similarly indicate that negative demand shifts increase the probability of exit more for for-profits than not-for-profits. Finally, membership in a hospital chain significantly decreases the probability of exit for for-profits, but not not-for-profits.
 

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Entry and Competition in Local Hospital Markets

There has been considerable consolidation in the hospital industry in recent years. Over 900 deals occurred from 1994-2000, and many local markets, even in large urban areas, have been reduced to monopolies, duopolies, or triopolies. This surge in consolidation has led to concern about competition in local markets for hospital services. We examine the effect of market structure on competition in local hospital markets - specifically, does the hardness of competition increase with the number of firms? We extend the entry model developed by Bresnahan and Reiss to make use of quantity information, and apply it to data on the U.S. hospital industry. In the hospital markets we examine, entry leads to a quick convergence to competitive conduct. Entry reduces variable profits and increases quantity. Most of the effects of entry come from having a second and a third firm enter the market. The fourth entrant has little estimated effect. The use of quantity information allows us to infer that entry is consumer-surplus-increasing.

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Are Invisible Hands Good Hands? Moral Hazard, Competition, and the 2nd Best in Health Care Markets

The nature and normative properties of competition in health care markets have long been the subject of debate. In this paper we consider what the optimal benchmark is in the presence of moral hazard effects on consumption due to health insurance. Moral hazard is widely recognized as one of the most important distortions in health care markets. In general, economic analysis suggests that marginal-cost pricing leads to static Pareto optimal allocations. In health care markets, however, moral hazard due to health insurance leads to excess consumption, in the sense that insured individuals will consume medical services past the point where the marginal utility of an additional service is equal to its marginal cost (Arrow, 1963; Pauly, 1968). Since health insurance pays for part or all medical expenses, insured individuals face a price that is lower than the market price and consume more of the medical good than is optimal. Therefore it is not obvious that competition or marginal cost pricing is second best optimal given this distortion. The principal claim of this paper is that most of economists’ intuition regarding the welfare effects of price changes in markets not distorted by moral hazard applies quite well to markets where decision-making by consumers is distorted by moral hazard. In particular, lower prices are better for consumers than are higher prices. Furthermore, the gain to consumers from lowering price from supra-marginal cost levels to marginal costs outweighs the loss of profit to the medical industry. Finally, the usual method of computing consumer’s surplus by integration under the demand curve is still appropriate in markets with moral hazard.

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Change, Consolidation, and Competition in Health Care Markets

The health care industry is being transformed. Large firms are merging and acquiring other firms. Alliances and contractual relations between players in this market are shifting rapidly. Within the next few years, many markets are predicted to be dominated by a few large firms. Antitrust enforcement authorities like the Department of Justice and the Federal Trade Commission, as well as courts and legislators at both the federal and state levels, are struggling with the implications of these changes for the nature and consequences of competition in health care markets. This paper summarizes the nature of the changes in the structure of the health care industry. This paper focus on the markets for health insurance, hospital services, and physician services. Potential implications of the restructuring of the health care industry for competition, efficiency, and public policy is discussed. As will become apparent, this area offers a number of intriguing questions for inquisitive researchers.

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Competition Among Hospitals

Competition Among Hospitals
 

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Household Demand for Employer-Based Health Insurance

Household Demand for Employer-Based Health Insurance

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Does Managed Care Matter? Hospital Utilization in the U. S. between 1985 and 1993

A study on the impact of HMOs on Hospital Utilization.
 

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Enter at your own risk: HMO participation and enrollment in the Medicare risk Market

This paper examines HMO participation and enrollment in the Medicare risk market for the years 1990 to 1995. A profit-maximization model of HMO behavior is developed, which explicitly considers potential linkages between an HMO’s production decision in the commercial enrollee market and its participation and production decisions in the Medicare risk market. The results suggest that the AAPCC is a primary determinant of HMO participation, while the price of a supplemental Medicare insurance policy positively affects HMO Medicare enrollment. This paper also finds empirical support for the existence of complementarities in the joint production of an HMO’s commercial and Medicare products.

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Increasing Consolidation in Health Care Markets: What are the Antitrust Policy Implications?

Increasing Consolidation in Health Care Markets: What are the Antitrust Policy Implications?

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Physicia Networks and Their Implications for Competition in Health Care Markets

The physician market is being transformed in dramatic ways. One of the most notable areas of change has been tremendous growth in physician networks, such as independent practice associations (IPAs). As of August 1996, there were approximately 4,000 IPAs with an average of 300 physicians each, up from approximately 1,500 in 1990. Physician networks are made up of otherwise independent physicians that join together to market themselves collectively to health insurers, and in some cases, directly to employers. Normally, independent competitors are not allowed to set prices jointly. The key question here is whether these networks represent an efficient response to the changing structure of health care markets or strategic attempts to increase market power.

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The Sociology of Groups and The Economics of Incentives: Theory and Evidence on Compensation Systems

This paper incorporates the sociological concept of "group norms" into an economic analysis of pay systems. We use a behavioral microeconomic model and a unique survey of medical groups to examine the theoretical and empirical relationship between group norms and incentive pay. Our findings suggest that, at least for medical groups, norms are binding constraints in the choice of pay practices. While group norms matter, the patterns in the data suggest that they are not all that matters. Analysis of the preferences and activities of individual physicians indicate that factors highlighted by the economic theory of agency, notably income insurance and multi-task considerations, also shape pay policies. The conclusion from these results is that the sociological concept of group norms augments rather than replaces more conventional economic analyses of pay practices.

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Insurance, Vertical Restraints and Competition

Insurance, Vertical Restraints and Competition

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Physician Contracting with Health Plans, A Survey of the Literature

Physician Contracting with Health Plans, A Survey of the Literature

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