Larger Plans Get Better Physician Prices, Who Knew?

By January 11, 2017Commentary

There are hypothesized to be certain laws of economics, one of them being that if you have more market share you should have more influence over pricing.  A study in Health Affairs finds that indeed this is the case in regard to health plan size and the reimbursement offered to physicians.   (HA Article)   The researchers used a large multipayer commercial claims database for 2014 to examine the relationship between both physician and health plan market share and resulting prices.  The physician prices used were those for independent office settings, not in outpatient offices or those owned by hospitals.  Health plans and physicians were each put in one of three market share categories, less than 5%, 5% to 15% or 15% and above.   Plans with a 5% to 15% market share negotiated about an 18% lower price for one common office visit code, or about $16, from the same physician than did a plan with less than a 5% market share.  Those insurers with more than a 15% market share appeared to obtain an additional 2% to $4% reduction in price paid.

The same holds true for provider market share.  Small market share providers got about 8% less from a small market share insurer than did large market share providers (more than 15% share), or $88 versus $97 for a larger market share provider.  Similarly, the small market share physicians got $72 from the medium share plans while the large share physicians received $86 and the small share physicians were paid $70 by a large share plan and the large share physicians got $76.   So larger health plans consistently paid less, regardless of physician group size, and larger physician groups consistently got paid more, regardless of plan market share.  For consumers, the best situation would appear to be one where the physician market is very dispersed and the plan one very concentrated, but that assumes health plans will pass the benefit of lower costs on.  This study reaches a result a little different from that some research has suggested in regard to hospital prices, where large market shares for both plans and hospitals in a region appears to lead to higher prices than would exist when only one of the bargaining parties has a high market share.  Sort of an oligopolistic synergy.

Author Kevin Roche

The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at khroche@healthy-skeptic.com.

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