Larger health insurers are able to negotiate lower prices with providers, according to a new study. But that doesn’t necessarily mean payer consolidation is the answer to keeping healthcare costs in check.
The study, conducted by researchers from Harvard Medical School and published in the January issue of Health Affairs, examined multipayer claims data from 2014 to assess how insurers’ market power affected the rates that they were able to negotiate for office-based physician services.
The researchers found that greater market power did indeed give insurers a leg up at the negotiating table. For example, when examining rates for office visits paid to the same group of providers, they estimated that large insurers—those with market shares of 15% or more—negotiated prices that were 21% lower than prices negotiated by small insurers, or those with market shares of less than 5%.
Looking at providers of different sizes, the study also found evidence that insurers require greater market shares to negotiate lower prices from large provider groups than with smaller ones. And if providers respond to insurer mergers with greater consolidation of their own, that would boost their bargaining power and let them negotiate higher prices, the study said.
Those findings also illustrated just how difficult it can be for smaller, independent medical practices to survive, according to the Washington Post. “Really, if you’re a small player, you get a take-it-or-leave-it offer,” Laurence Baker, an economist at Stanford University who was not involved in the study, told the publication.
Yet just because consolidation can help insurers negotiate lower prices doesn’t mean that is the best—or only—way to control costs, the authors noted. For one, the strategy of selective contracting allows insurers of any size to negotiate lower prices with providers without having to resort to consolidation.
In addition, as some have agued in opposing the Aetna-Humana and Anthem-Cigna mergers, insurers may not necessarily pass the savings they obtain from price negotiating onto consumers.
Therefore, “additional policies that remedy the consequences of a lack of competition among insurers and providers might be needed to limit the influence of market power on health care spending,” the authors concluded.