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Insurer Market Power Lowers Prices In Numerous Concentrated Provider Markets
Richard M Scheffler1, Daniel R Arnold2
1Richard M. Scheffler (rscheff@berkeley.edu) is a distinguished professor of health economics and public policy at the School of Public Health and the Goldman School of Public Policy, and director of the Nicholas C. Petris Center on Health Care Markets and Consumer Welfare at the School of Public Health, all at the University of California, Berkeley.
Insights
In moderately concentrated markets, higher insurer concentration can lower provider prices for hospital admissions and specialist visits. However, these savings aren't passed to consumers, necessitating policy interventions.
Area of Science:
- Health Economics
- Market Analysis
- Healthcare Policy
Background:
- Market concentration, measured by the Herfindahl-Hirschman Index (HHI), influences healthcare prices.
- Understanding the interplay between provider and insurer market concentration is crucial for healthcare cost analysis.
Purpose of the Study:
- To analyze the relationship between provider and insurer market concentration and healthcare prices.
- To determine if insurer bargaining power, influenced by market concentration, affects provider prices.
Main Methods:
- Utilized hospital admission and physician visit prices across five provider types.
- Employed the Herfindahl-Hirschman Index (HHI) to measure provider and insurer market concentration.
- Compared prices in markets with varying HHI levels for providers and insurers.
Main Results:
- In moderately concentrated markets (HHI 1,500-2,500), higher insurer concentration (HHI > 2,000) correlated with lower provider prices.
- Hospital admission prices decreased by 5%, and visits to cardiologists, radiologists, and hematologist/oncologists decreased by 4%, 7%, and 19% respectively.
- No significant price reduction was observed for primary care physicians or orthopedists.
Conclusions:
- Insurer market concentration can reduce provider prices in specific healthcare markets.
- Current market mechanisms do not ensure these savings are passed to consumers via lower premiums.
- Policy solutions involving large purchasers and regulatory approaches may be necessary to address this dilemma.
Abstract:
Using prices of hospital admissions and visits to five types of physicians, we analyzed how provider and insurer market concentration-as measured by the Herfindahl-Hirschman Index (HHI)-interact and are correlated with prices. We found evidence that in the range of the Department of Justice's and Federal Trade Commission's definition of a moderately concentrated market (HHI of 1,500-2,500), insurers have the bargaining power to reduce provider prices in highly concentrated provider markets. In particular, hospital admission prices were 5 percent lower and cardiologist, radiologist, and hematologist/oncologist visit prices were 4 percent, 7 percent, and 19 percent lower, respectively, in markets with high provider concentration and insurer HHI above 2,000, compared to such markets with insurer HHI below 2,000. We did not find evidence that high insurer concentration reduced visit prices for primary care physicians or orthopedists, however. The policy dilemma that arises from our findings is that there are no insurer market mechanisms that will pass a portion of these price reductions on to consumers in the form of lower premiums. Large purchasers of health insurance such as state and federal governments, as well as the use of regulatory approaches, could provide a solution.
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