Insurer Market Power Lowers Prices In Numerous Concentrated Provider Markets

By Richard M. Scheffler and Daniel R. Arnold | Published September 2017 in Health Affairs |Link to Full Article

Consolidation of health systems has rapidly increased in the last two decades: from 1998 to 2015, there were 1412 hospital mergers in the United States; 40% of those came after 2009. The paper uses prices of hospital admissions and visits to five types of physicians to analyze how this growing provider and insurer market concentration—as measured by the Herfindahl-Hirschman Index (HHI)—interact and are correlated with prices. The paper finds that insurers have the bargaining power to reduce provider prices in highly concentrated provider markets for cardiologist, radiologist, and hematologist/oncologist visit prices. This leads to a policy dilemma: there are no insurer market mechanisms that will pass a portion of these price reductions on to consumers in the form of lower premiums. The study concludes by discussing how large purchasers of health insurance, such as state and federal governments, as well as the use of regulatory approaches, could provide a solution.