Larger Market Share = Increased Negotiating Power for Insurers

February 2017 ~

A new study conducted at Harvard Medical School suggests insurers with the largest share of local markets can negotiate lower prices for physician office visits.

According to the report, payers that dominate the local market are able to negotiate lower physician office visit prices than their smaller peers. Health insurance companies with 15% or more of the market share negotiated visit prices that were 21% lower than those established by payers making up 5% or less of the market.

Payers with less than 5% of the market ended up with negotiated prices of $88 per office visit, compared to a final price of $72 for payers with 5 to 15% of market share and just $70 for those with more than 15% of covered lives in a given region.

The study indicates that large mergers potentially hold the power to drive down prices by increasing the bargaining power of healthcare payers, although those savings may not translate to the consumer’s wallet.

“Our findings suggest that mergers between large health insurers, such as those recently proposed, could lead to lower negotiated prices with health care providers,” the study’s authors wrote. “However, mergers might not ultimately reduce the costs of care borne by consumers because the savings that insurers realize from negotiating lower prices might not accrue to consumers.”

“On the insurer side, the ACA requires insurers to spend at least 80– 85% of premium revenues on medical care and activities related to quality improvement. This medical loss ratio provision is intended to increase the share of price reductions obtained by insurers that are passed on to consumers,” the authors noted. “However, since much of the research on insurance market structure and premiums is based on data predating the ACA, and in light of the current political uncertainty surrounding the ACA, it is not clear whether this provision will ultimately be effective in ensuring that insurers’ savings from lower negotiated prices are passed on to consumers.”

The study’s authors added that policymakers may need to address the negative influences of market power on healthcare spending.

“This study adds to a growing body of evidence that health care costs are affected by the bargaining power of providers and insurers,” the researchers said. “Our findings suggest that mergers among health insurers will likely enhance their ability to negotiate lower prices from providers.”

“Such increases in insurer market power may have a particularly strong effect on price negotiations with large provider organizations, as we found that insurers required larger market shares to negotiate substantially lower prices from provider groups with large market shares.”

For the study, researchers analyzed a 2014 database containing large, multi-payer commercial health insurance claims generated by FAIR Health. Claims with $0 or statistically insignificant low prices were excluded from the study sample.

The average insurer market share ownership was 24.5%. Some insurers were reported as having as much as 85.8% in certain counties. The four largest insurers in the US had market shares between 5 and 15% ownership within 44% of large counties. Mergers involving major national or regional insurers increased insurer market share from below to above 15% market ownership in several counties.

“These results suggest that mergers of health insurers could lower the prices paid to providers, particularly providers large enough to obtain higher prices from insurers with modest market shares,” the researchers said.

The researchers conclude that increased transparency in consumer pricing helps to build consumer awareness and stifle the negative consequences of limited insurance competition.

“To protect consumers from the potential adverse consequences of weaker competition, several strategies have been pursued to strengthen competition among providers and insurers,” the team said.

“To address information problems facing consumers (that is, incomplete information about provider prices) and the limited incentives that consumers with insurance have to shop for lower-cost providers, insurers, and policy makers have introduced price transparency initiatives, reference pricing, and complementary coverage designs such as high-deductible health plans. The aim of these policies is to increase consumer cost-consciousness and to promote price competition among providers.”

Source(s): Health Affairs, January 2017; HealthcareDIVE, January 2017; HealthPayerIntelligence, February 2017;