Payers’ bargaining power can lower prices in concentrated provider markets

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Insurers could use bargaining power to reduce prices in highly concentrated provider markets, a new study found.

Payers have the bargaining power to reduce prices in heavily concentrated provider markets, according to a new study, but they may not put it to use.

Researchers at the University of California, Berkeley compared claims and pricing data from 2011 to 2014 and used the Herfindahl-Hirschman Index to measure market concentration. In moderately consolidated markets (an HHI score of between 1,500 and 2,000), they found that insurers can leverage their influence to lower prices for patients.

Admissions prices were 5% lower, and prices for certain specialty care also decreased; cardiologist visits were 4% cheaper, radiologist visits were 7% less expensive and hematologist or oncologist visits were 19% lower compared to less-consolidated markets, according to the study, which was published in Health Affairs.

There was limited difference in prices between markets where both hospital and insurer concentration were low and those where hospital concentration was low but insurance concentration was high. The decreases were recorded most significantly in markets where both insurers and hospitals were at least somewhat concentrated.

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Hospital prices in general increased over the study period, which included nearly 1,000 price adjustment estimates based on 640,000 annual admissions. The researchers also did not find evidence that a high concentration of insurers reduced costs for primary care or orthopedic care, according to the study.

Though they found evidence that insurers can catalyze lower costs for patients, the researchers noted that there is no mechanism in place that compels them to do so, and premium increases suggest that payers are doing little to offset consumer costs.

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“Given the extreme concentration of the health insurer market, it is hard to imagine that many markets will be contestable and that competition will work to reduce premiums,” the researchers said. “Significant premium increases and the profits of the health insurance industry in recent years suggest that little if any of the benefits of insurer bargaining power are being passed along to consumers.”

However, large-scale payers, like states and the federal government, could push for a solution, and regulatory change could provide incentives for payers to use more of their bargaining power to reduce hospital costs, the researchers said.