News & Commentary

Markets with fewer payers see lower hospital costs, doc visit prices

Insurer concentration in a market has the ability to reduce hospital costs for some specialties in highly concentrated provider markets, according to a recent study published in Health Affairs.

Researchers Richard Scheffler and Daniel Arnold, both of the University of California–Berkeley, computed market concentration by service area for insurers, hospitals, and primary care physicians, cardiologists, hematologists/­oncologists, orthopedists, and radiologists. Using commercial claims of about 50 million insured people, they also figured out hospital and doctor visit prices from 2010 to 2014.

They found that insurers were able to reduce hospital admission prices by 5% in markets where both insurers and providers were highly concentrated. In such markets, they also reduced the fees of cardiologists, radiologists and hematologists/oncologists by 4% to 19%, according to Scheffler and Arnold. Primary care and orthopedics prices weren’t affected.

Average regression-predicted physician visit prices, by physician and insurer market concentration, 2014

Source: Scheffler, RM, Arnold, DR, “Insurer Market Power Lowers Prices in Numerous Concentrated Provider Markets,” Health Affairs, September 2017

The bargaining power that insurers have in highly concentrated provider markets allows “insurers to capture a significant amount of monopoly rents that providers get in those markets. What is missing is a market mechanism that will pass these reduced prices on to consumers in the form of lower insurance premiums,” Scheffler and Arnold stated.

They concluded that “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.”

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