I study the determinants of the hospital networks o¤ered by managed care health insurers. I use a model of demand for health plans and hospitals, together with data on plans'hospital networks, to estimate the expected division of pro...ts between plans and hospitals. I include both a simple pro...t-maximization framework and an additional e¤ect: hospitals that do not need to contract with all plans to secure demand (e.g. "stars" that are very attractive to consumers and providers that expect to

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... be capacity constrained) may demand high prices that not all insurers are willing to pay. Hospital mergers to form "systems" may also a¤ect bargaining between hospitals and insurers. I estimate that "star" hospitals capture markups of approximately 25 percent of revenues, compared to other providers whose estimated markups are negative. Capacity constrained providers have similarly high markups; system members' markups are also positive. These results provide information on the hospital investment incentives generated by bargaining. The e¤ects of managed care health insurers on the price and quality of medical care have been widely researched 1 . One aspect of their impact, however, has not been addressed in detail: the restriction imposed by each insurance plan on the network of hospitals from which its enrollees can choose. In a previous paper (Katherine Ho 2006) , I estimate a model of consumer demand for hospitals and health insurers taking these constraints into account. In this paper I use the demand for helpful comments and Columbia's Program for Economic Research for ...nancial support. 1 For example, Robert H. Miller and Harold S. Luft (1997) review ...fteen studies of the e¤ects of managed care on quality. They ...nd no compelling evidence of a reduction in quality of care, although patients show less satisfaction with managed care than with traditional plans. David M. Cutler, Mark B. McClellan and Joseph P. Newhouse (2000) consider the causes of the expenditure reductions achieved by managed care plans in the treatment of heart disease. They show that virtually all the di¤erence in spending between indemnity plans and HMOs comes from lower unit prices rather than the quantity of services or a di¤erence in health outcomes.