It is well-documented that there has been a steady and dramatic rise in provider market concentration, both among hospitals and across other types of providers. Although two recent large proposed health plan mergers were rejected by regulators and courts, there has still been a very high level of merger activity between health plans that has led to a more concentrated health insurance market. So what is the net effect of having concentrated hospital/health system and health plan markets on prices? Research in Health Affairs tackles this question. (HA Article) The researchers looked at the association, if any, between provider and insurer market concentration and prices paid to the providers from 2010 to 2014. The researchers divided provider markets into three tiers–high, medium or low concentration; and health plan ones into two groups, high or low concentration. Prices were inferred from the Health Care Cost Institute’s medical claims database, which unfortunately does not contain much data from Blues plans, who often dominate in specific states. Market concentration was assessed using the standard Herfindahl-Hirschmann Index. For health plans, commercial insurance lives covered were used as the market measure.
In general hospital prices increased about 20% over the study period, which is a pretty hefty rise. Physician prices rose more slowly or in some cases, decreased. Physician market concentration rose rapidly in the study period, while that for hospitals and health plans was fairly stable, those markets already being concentrated. The base case was considered to be that when both health plan and hospitals had low market power. There was little price change from this base case when insurer concentration was high but hospital power low. If hospital concentration was high, however, and health plan market power low, then prices were 11% higher on average. If both markets were concentrated, prices were 5% lower than the situation in which hospitals alone had market power. This suggests that while health plans with market power can negotiate somewhat lower prices, hospitals with high power still extract more revenue than when they have low power. For primary care and orthopedic physicians, there appeared to be little effect of market concentration, but for cardiologists, radiologists and oncologists it did appear that health plans with market power could control prices better, although again, when both markets are concentrated, prices are still higher than when only the health plan one is.
Although this article does not analyze premiums and the impact of concentration on them, other research suggests that in dual high market power areas, not only are provider prices higher, but premiums are as well. In these settings, while provider prices are not as high as when only hospitals have market power, any savings are not passed on to consumers and employers. This is the worst case situation we are headed for in most of the country–limited number of health systems and limited number of health plans, who decide to charge the ultimate payers more and split the profits. The only possible solutions are to structurally force a change in the composition of the market or have extensive price regulation.