Insurer, Provider Concentration Lowers Physician Fees

Marcia Frellick

September 06, 2017

In markets where insurers and providers are concentrated — where consolidations have increased individual market shares — hospital admissions and physician fees drop, a big-data study shows.

However, the power to negotiate lower prices did not result in lower premiums for consumers, write Richard M. Scheffler, PhD, professor at the School of Public Health and the Goldman School of Public Policy and Daniel R. Arnold, PhD, a postdoctoral fellow in health economics at the Nicholas C. Petris Center on Health Care Markets and Consumer Welfare, both at University of California, Berkeley.

The results were published in the September issue of Health Affairs.

Consolidation of health systems has rapidly increased in the last two decades, the authors note. From 1998 to 2015, there were 1412 hospital mergers in the United States; 40% of those came after 2009.

"The hospital and insurer markets have become so concentrated that consumer choice is often limited to a few hospitals and insurers," the authors write. "If you don't have choice, you can't have competition."

The researchers, who studied commercial claims from 50 million insured adults in the Health Care Cost Institute's database, found that concentrated markets resulted in lower hospital admissions prices and fees for three of the five specialties they compared. The team analyzed hospital price data from 2010 to 2014 and physician fee data from 2011 to 2014.

Better bargaining power on the part of insurers reduced hospital admission prices and fees by 5% for cardiologists, 4% for radiologists, and 19% for hematologists/oncologists, compared with markets of lower concentration.

"We did not find evidence of insurer bargaining power on prices of visits to either primary care physicians or orthopedists," the authors write.

Dr Scheffler told Medscape Medical News that lack of effect is likely because prices for those specialties are not far out of line, so it's very hard for payers to negotiate from a price that is not far out of competitive range.

Across the five physician types, the sample included a low of just more than 3000 hematologists/oncologists to more than 50,000 primary care physicians.

Dr Scheffler says that, aside from insurers in some of the Affordable Care Act exchanges, insurers "are making a huge amount of money."

With market concentration, "medicine doesn't improve, the quality doesn't get any better, consumers don't benefit, but the insurance companies' stock prices go up," he said.

The authors write that, "For a significant part of the health care system, the standard competitive model now has little relevance."

State and federal governments and regulators could help, he said. The authors propose three avenues for change.

First, Dr Scheffler, says, the Federal Trade Commission should get more involved in investigating the pricing practices of highly concentrated markets.

Second, states should more aggressively regulate premiums that insurance companies charge and ensure that savings get passed on to consumers. Some states are already doing this, he notes.

Third, large companies may want to bypass insurers altogether and self-insure their employees, he said.

"This is happening in large companies, Boeing for example, which has millions of workers," Dr Scheffler said. That way they can negotiate lower prices directly with hospitals and pass them on to employees.

The authors note several limitation, including the fact that the database they used does not include claims from Blue Cross–Blue Shield plans. That absence could skew the findings because some of the most concentrated markets are dominated by one of those plans.

This study was funded by the Commonwealth Fund, the California Health Care Foundation, and the Nicholas C. Petris Center on Health Care Markets and Consumer Welfare at the University of California, Berkeley. The authors have disclosed no relevant financial relationships.

Health Aff. 2017;36:1539-1546. Abstract

For more news, join us on Facebook and Twitter


Comments on Medscape are moderated and should be professional in tone and on topic. You must declare any conflicts of interest related to your comments and responses. Please see our Commenting Guide for further information. We reserve the right to remove posts at our sole discretion.