Insurers can match bargaining power of consolidated providers but consumers don’t benefit

In markets where both insurers and providers have become highly concentrated, insurers had enough bargaining power to reduce prices on hospitalization and certain specialty care. Those savings were not, however, passed onto consumers in the form of lower premiums.

The study was published in Health Affairs and led by Richard Scheffler, PhD, director of the Nicholas C. Petris Center on Health Care Markets and Consumer Welfare at the School of Public Health at the University of California, Berkeley. It involved data from commercially insured patients aged 18 to 64 from the Health Care Cost Institute’s physician file, along with measures of insurer and physician consolidation from the American Hospital Association and SK&A and computed measures of market competitiveness known as the Herfindahl-Hirschman Index (HHI). HHI is based on scale of 0-10,000, with 10,000 representing a market with only one firm.

HHIs for providers increased during the study period between 2010 and 2014, with hematology/ oncology practices having the highest level of market concentration with an average HHI of around 2,500, the threshold for a highly concentrated market. The HHIs for both hospitals and insurers hovered around the same range. Hospital prices overall increased during the study period, from nearly $14,800 in 2010 to nearly $17,800 in 2014.

When both hospital and insurer concentration was low, the average hospital admission price was $16,171. That didn’t change significantly when insurer concentration was high but hospital concentration remained low. When hospital concentration was high but insurers’ market power was lower, however, prices did jump by 11 percent to an average of $17,952.

When both concentrations were high, prices were 5 percent lower at $16,994—above prices when both insurer and provider concentrations were low. Additionally, the study found high insurer concentration reduced prices when certain specialties were highly concentrated: cardiology visit prices were 4 percent lower, radiology prices were 7 percent lower and oncology/hematology prices were 19 percent lower. For primary care or orthopedist visits, however, insurer bargaining power didn’t significantly lower prices.

The conclusion Scheffler and her coauthors drew was increased provider market power results in increased prices, while insurer concentration can drive down some of those increases. The savings from that insurer bargaining power, however, don’t seem to benefit consumers.

“This allows insurers to capture a significant amount of the monopoly rents that providers receive in highly concentrated markets,” they wrote. “What is missing is a market mechanism that will pass these reduced prices on to consumers in the form of lower insurance premiums.”

The study expected insurer consolidation to continue despite the collapse of the Aetna-Humana and Anthem-Cigna mega-mergers. With their increased power not seeming to benefit consumers, Scheffler and his coauthors predicted greater regulation of insurers at the state and federal level “would seem to be only a matter of time.”