Payer mergers could help lower prices paid to providers, study suggests

A new study published in Health Affairs suggests that health insurer mergers could actually lower the prices paid to providers, particularly providers large enough to obtain higher prices from insurers with modest market shares, potentially dispelling concerns that consolidation among providers that prices will rise as providers establish market power.

Using multipayer claims for physician services provided in office settings, the authors estimated that within the same provider groups, insurers with market shares of 15 percent or more negotiated prices for office visits that were 21 percent lower than prices negotiated by insurers with shares of less than 5 percent.

Insurers require greater market shares to negotiate lower prices from large provider groups than they do when negotiating with smaller provider groups. For example, office visit prices for small practices were $88 for insurers with market shares of less than five percent; $72 for those with market shares of five percent or greater; and $70 for insurers with market shares of 15 percent or greater. Meanwhile, the corresponding prices for large provider groups were $97, $86 and $76, respectively, exhibiting a continued decrease across higher insurer-market-share categories.

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Differences in providers' and insurers' bargaining power are a major contributor to variation in commercial healthcare prices, the authors concluded; this, they said, underscores the concerns of regulators and policymakers about the effects of ongoing provider and insurer consolidation on healthcare costs.

The study is the latest to suggest healthcare costs are affected by the bargaining power of providers and insurers. Mergers among health insurers, it said, will likely enhance their ability to negotiate lower prices from providers. Such increases in insurer market power may have a particularly strong effect on price negotiations with large provider organizations, since it was discovered that insurers required larger market shares to negotiate substantially lower prices from provider groups with large market shares.

Likewise, the findings also suggest that further consolidation among providers would likely increase their bargaining leverage in relation to insurers, enabling them to negotiate higher prices.

There are pros and cons to this trend, the authors contend. The Department of Justice has increased its review of proposed transactions and blocked several takeovers because of their potential anticompetitive effects in response to a recent upswing in hospital mergers. On the other hand, consolidation in the insurer market could strengthen insurers' ability to negotiate lower prices with providers. For example, four of the largest U.S. health insurers -- Aetna, Anthem, Cigna and Humana -- have proposed mergers, which if completed could greatly increase concentration in the insurer market in many regions of the country.

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While the study found that insurers with a large share of enrollment in a provider's market negotiate lower prices, on average, the authors stress that doesn't necessarily imply that relaxing the antitrust regulation of insurer mergers is an appropriate policy response to provider consolidation. Insurer consolidation could prompt additional provider mergers, whose effects on price negotiations might not ultimately lead to a net decline in prices. It's also not clear that the lower prices negotiated by large insurers are shared with consumers in the form of lower premiums or more generous benefits.

Insurers of any size can negotiate lower prices through selective contracting without necessarily undergoing consolidation, the study found. Specifically, insurers that can use narrow or tiered networks to steer enrollees to particular providers might obtain price discounts.

Twitter: @JELagasse