An analysis of 15.3 million doctor office visits shows that physicians get paid significantly more if they are part of a large provider group, while insurance companies can dramatically reduce what they pay doctors for those visits if they've consolidated their share of the marketplace.
The study in Health Affairs puts some hard numbers to a basic economic concept of market dominance and the bargaining that accompanies it.
In 2014, an insurance company with less than 5 percent of the market typically paid $86 for a basic office visit. Just increasing their market share to 5 to 15 percent reduced the average amount the insurer paid to $70, or 18 percent less.
But those amounts varied depending on the size of the healthcare provider.
Providers with only a small share of the market typically received $88 for an office visit from an insurance company with less than 5 percent of the market. But when the insurance company commanded at least 15 percent of the market, that office visit earned the provider just $70 per visit.
When a large healthcare provider controlled at least 15 percent of the local market share, it could get an extra $9 per visit (or $97) from insurance companies with a small market share and $6 more (or $76) from insurers with a large market share.
The same pricing pattern was seen for office visits when patients had more complex problems, the researchers found.
When it comes to consolidation efforts, "we're showing that for insurers it lowers prices and with providers it increases prices," coauthor J. Michael McWilliams of Harvard Medical School in Boston told Reuters Health in a telephone interview. "It's really uncertain where that will end up. But in the process, we are losing competition in both markets. And when markets become less competitive, consumers generally lose out."
The authors estimated that every time a provider's market share went up 10 percentage points, the amount received for an uncomplicated office visit rose by an average of $3.16. The increase was $6.23 for a visit with a patient with complicated problems.
"Those are underestimates," said McWilliams, the Warren Alpert associate professor of health care policy, "because we could measure provider market power less well than we could insurer market power."
The study comes amid concern that a consolidation of healthcare providers, particularly hospitals, might give them more power to raise prices and that a similar consolidation of health insurance companies might make prices artificially low. Aetna, Anthem, Cigna and Humana, four of the largest insurers in the United States, are working on mergers. Previous research has shown that when providers consolidate, prices go up.
Unlike previous work, the new study looked at price data for multiple insurers covering patients in many markets, taking into account market share and the bargaining power that comes with it. The study also revealed how the same insurer can pay significantly different amounts to different practices.
The numbers were based on data from each insurer's preferred provider organization and point-of-service plans. Data where it was clear that out-of-network billing was involved were excluded, as were visits to outpatient facilities and offices owned by hospitals.
"Insurers consolidating to negotiate lower prices and providers negotiating to produce higher prices produces an unclear effect on prices in the end," McWilliams said. "So, in the end, this cycle of insurer-provider consolidation may be a zero sum game."
He and his colleagues do not offer a specific solution.
"It's unclear whether regulations can be smart enough to insure savings get passed along to consumers," said McWilliams. "The horse has left the barn in many markets in terms of provider-insurer markets already being pretty concentrated. So we do need to consider some new forms of regulation."