Health Market Concentration

By August 8, 2018Commentary

As discussed in yesterday’s post, hopefully most policymakers understand that our health care spending issues relate mostly to prices.  And those prices are driven by market factors, such as degree of concentration.  And a Commonwealth Fund Post shows just how concentrated most of our geographic markets have become, both among providers and health plans.   (Comm. Fund Post)    The researchers examined a large number of metropolitan statistical areas and used the standard HHI formula for determining level of concentration.  Most markets are highly concentrated, 47%, or super concentrated, 43%,  for providers.  That means only 10% don’t fall in one of these very concentrated categories.  On the other side, 54.5% of markets are concentrated for health plan services and 37% are moderately concentrated.  Providers are more concentrated, and thus likely have more market power, than health plans in 58% of the MSAs studied, while health plans are more concentrated than providers in just 6% of the MSAs.  It is striking that in these markets, where almost all Americans reside, there is not really any significant number that retain true market characteristics that would facilitate real competition in either price, quality or other terms.  Should we be at all surprised then, that health spending especially for private health plans keeps rising so rapidly or that people have little perception that their health plan or health provider quality is improving.  It is pathetic that we have allowed ourselves to end up in this state.

The most important observation from the post, which has been made before by these authors and others, is that when a market is concentrated among both providers and health plans, no one has any incentive to control prices or premiums.  The plans are happy to let the providers charge more and they just mark up their premiums even further and blame it on the providers.  Everybody is happy expect the people really paying the bills–employers and consumers.  I will say this til I am blue in the face (not hard to reach that state in Minnesota in the winter), we need to actually reverse this–break up the large health plan companies; break up the large health systems, both horizontally and vertically and specifically limit how much market share any provider or plan can have, and we need to limit ancillary tactics that plans and providers use to maintain market power and pricing–like price non-disclosure clauses, most-favored nation pricing, and exclusivities.  Those steps, coupled with using government-granted patent price controls that stop drug companies from using their patents to create exorbitant pricing and price increases, would actually go a long way toward limiting health spending growth.

Kevin Roche

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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