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Competition and Physician Prices

By October 28, 2014Commentary

People occasionally suggest that somehow physicians and other clinicians don’t operate in accord with traditional economic rules.  Real research generally suggests that they do and a study on competition among physicians and the effect on pricing, published in the Journal of the American Medical Association certainly supports this view.  (JAMA Article)   Using at a large commercial database of claims from employer-based PPO plans, the authors examined correlations between the level of competition in a market and prices for services from ten physician specialties.  The services were new patient visits and the specialties were internal medicine, family practice, cardiology, dermatology, gastroenterology, neurology, general surgery, orthopedics, urology and ENT.  The price was the actual contract price that the physician was entitled to collect, from the health plan and the patient.  A Medicare claims database was used to determine the level of competition for the specialties in the geographic submarkets.  The Hirschman-Herfindahl Index was used to categorize a market’s competitiveness.  Only markets with more than 10,000 people were analyzed.  A variety of adjustment factors were included in the regression models.

As might be expected, internal medicine and family practice had the highest level of competition out of the specialties studied.  There was a threefold or more variation in competition level across specialties in various markets.  There also was significant variation in prices.  Higher HHI levels were associated with higher average prices for all ten specialties.  A market with a 1000 point higher HHI value had average prices 2% to 6.5% higher than the national average, depending on the specialty.  Over time, the prices in less competitive areas grew faster than the prices in more competitive ones.  And geographic markets that shifted from more competitive to less competitive over time also experienced higher price growth.   The implications are obvious, as health systems acquire multiple practices or as practices merge, competition lessens and both health plans and patients pay more.  Over $250 billion is spent on physician services annually, so 5% of that is a lot of money.  As we apparently never tire of suggesting, it is time for policymakers and regulators to stop the increasing concentration on the provider side of health care.

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