More Payers, More Providers Increase Price Negotiation Power

September 18, 2017 - Payers that operate within healthcare markets with a high concentration of payers and providers prices can negotiate the price of services up to 19 percent lower than those operating in low-concentration payer-provider markets, found a new study published in Health Affairs.

Researchers from the University of California Berkeley analyzed payer-negotiated prices for healthcare services in markets with low, moderate, and high provider concentration, where the differences in price negotiating power were noticeable.

When both hospitals and insurers had low concentration within a market, the average price of a hospital admission was $16,171. If insurer concentration increased but hospital concentration remained low in a market, the average admission price increased slightly to $16,676.

However, when payer concentration was low and hospital concentration was high, the average price of hospital admission for a payer was $17,952, which is a 11 percent increase from when both payer and hospital concentration were low.

The data indicates that prices only decrease when the balance of negotiation power is shifted in favor of payers, not providers.

When payers operated in marketplaces with a high concentration of providers and a high concentration of payers, they were able to cut the average price of healthcare services across several provider categories.

Payers in high cardiologist-concentrated markets with high insurer competition could reduce the price of cardiology services by 4 percent, from $123 to $118 dollars.

Similar instances occurred for payers that moved from low to high market concentrations for radiology, hematology, and oncology providers.

“An increase in radiologist concentration from low to high, while insurer concentration remained low, increased the price by 11 percent (from $175 to $194), while the effect of insurer bargaining power reduced the price by 7 percent (from $194 to $180),” the team said.

“Finally, moving from low to high hematologist/oncologist concentration while keeping insurer concentration low increased the price by 21 percent (from $176 to $213). The move to high hematologist/oncologist and insurer concentrations decreased the price by 19 percent (from $213 to $173),” they continued.

While these developments in payer negotiation power can help generate savings on healthcare spending, payers must be wary of the potential implications high insurer/provider concentration in healthcare markets have on beneficiaries.

As hospitals and insurers become concentrated, health plan purchasers and health care utilizers may be forced into purchasing services and plans that do not meet their needs.

“The hospital and insurer markets have become so concentrated that consumer choice is often limited to a few hospitals and insurers,” the team said. “Physician markets are moving in the same direction. In addition, there has been a rapid increase in vertical integration in accountable care organizations and the purchase of physician practices by hospitals.”

As large, established payer organizations continue to develop their businesses, market consolidation may further enhance their already large market control and phase out small to mid-size insurers that keep markets competitive and healthy.

“Despite a US District Court’s rejections of the Anthem-Cigna and Aetna-Humana mergers, there seems to be little doubt that market consolidation by providers and insurers will continue,” the team said. “Thus, to the extent that competition exists, it will be among big players in the market.”

The team concluded that a mechanism is needed to translate the savings generated from high payer and provider market control to consumers/beneficiaries.

“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 team concluded.

“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 It would seem to be only a matter of time before further intervention in and regulation of the health insurance market by state and federal legislatures, as well as private market innovations, will accelerate.”