The bigger the health insurer, the lower the prices it can negotiate from physician groups, a Harvard Medical School study published Monday concluded. The findings add to a growing catalog of evidence that consolidation among health insurers, such as the pending tie-ups between four of the largest national health insurers, affects the cost of healthcare for both providers and patients.
Large insurers with market shares of 15% paid prices for independent physician office visits that were 21% lower on average than prices negotiated by small insurers with shares of less than 5% of a given market, according to the study published in Health Affairs.
The bottom line: “Bigger insurers have this bargaining power they are using to negotiate lower prices,” said Eric T. Roberts,a postdoctoral fellow in the Department of Health Care Policy at Harvard Medical School who authored the study.
The researchers used a multipayer claims database, FAIR Health, to analyze how much commercial health plans paid for about 15 million doctors' visits in 2014. Medicare and Medicare rates weren't studied.
They analyzed three different types of standard doctor's visits, many of which were billed by primary-care doctors. The 10 commercial insurers included in the study were a mix of small local players as well as national insurers, though their names were not divulged.
Insurers were grouped according to market share size, which the study defined as the share of commercial enrollment in a given provider's county. Using this method, researchers were able to study the variation in the price an insurer pays different physician practices in the same area for the same service.
For one type of basic visit with an established patient, insurers with less than 5% market share paid $86 to physician practices. But insurers with market share between 5% and 15% paid just $70 to the same providers for the same service.
The study further concluded that only large insurers are able to negotiate relatively lower prices from large provider groups. Small and midsize insurers pay higher prices to large provider groups for the same services.
“What we're showing here is that these provider groups have some bargaining leverage, and that it's really larger insurers that are able to counteract that bargaining leverage of provider groups in getting lower prices,” Roberts said.
But that doesn't necessarily mean insurer mergers are the antidote to provider consolidation—a trend that has grown as a result of the Affordable Care Act's payment reforms that encourage providers to collaborate with each other—because that “doesn't necessarily translate to lower prices or lower premiums or better prices for consumers,” Roberts said.
Health insurers could very well pocket the savings instead of passing them on to their plan members.
If insurers are already able to negotiate lowered prices, they “probably also have a lot of market share in terms of selling insurance policies,” said Erin Trish, a health policy professor at the University of Southern California who is unaffiliated with the study. In that case, “they may not have as much as incentive to pass on those prices to customers.” They don't need to, because they don't face as much competition in the area from other insurers.
Moreover, “ultimately what you want is competition on both sides of the market,” Trish said, so insurers merging as a way to mitigate the effects of providers merging is generally not seen by economists as good for the market.
In the U.S. Justice Department's complaint against the pending combination of national insurers Anthem and Cigna, federal regulators point out that the merger could reduce competition for the purchase of healthcare services, which could lead to lower reimbursement rates for providers, less access to medical care, reduced quality of care, and fewer value-based provider collaborations. The Anthem-Cigna merger has just wrapped an antitrust trial in federal court and officials are waiting to learn if it will be allowed to go forward.
Roberts pointed out that some of the mergers recently proposed between health insurers could alter the insurance market where many of the newly combined companies would have market shares of more than 15% in different counties where they operate, meaning there's potential that these new companies will pay providers in the area lower prices. How physician groups will react to the trend is up in the air.