Larger Insurers, Provider Groups Have More Success Negotiating Prices

A recent study in Health Affairs indicated that insurers with greater market shares are better able to negotiate lower prices, particularly from larger provider groups. The findings could have far-reaching implications as insurers continue to merge and smaller provider groups face lower payments.
Published Online: January 10, 2017
Christina Mattina
A recent study in Health Affairs indicated that insurers with greater market shares are better able to negotiate lower prices, particularly from larger provider groups. The findings could have far-reaching implications as insurers continue to merge and smaller provider groups face lower payments.

The trend toward consolidation among both insurers and provider groups has raised concerns of potential anti-competitive effects on the market, but its net impact on pricing had been unclear. The study researchers examined data from a large multipayer claims database to measure variation in negotiated prices for 3 in-office physician services based on the payer’s bargaining power as determined by market share. They also investigated whether negotiated prices as an effect of insurer market share varied based on the size of the provider’s market share. Finally, they looked at price variation within the same insurer for different providers.

Analyses revealed that, compared to insurers with smaller market shares, insurers with greater market shares negotiated lower prices for office visits with the same providers. For instance, the average price for a certain service negotiated between providers and small insurers with less than 5% market share was $86, while insurers with market shares of 5% to 15% paid $70 for that service when negotiating with the same providers—a difference of 18%. The price differentials between the 5% to 15% market share insurers and the insurers with over 15% of market share were smaller, ranging from 2% to 4%, but still statistically significant for all 3 services examined.

When these estimates were stratified by the provider market share, the findings suggested that payers required a larger share in the market in order to negotiate lower prices from large provider groups with market shares over 15%. The average price for one of the services within these large provider groups was $97 for insurers with less than 5% market share, but small providers with a market share of less than 5% were paid just $88 by the small insurers. Meanwhile, large insurers with over 15% market share paid $70 to the small providers and $76 to the large providers.

“Across all 3 services, the price differences between successively higher categories of insurer market share were statistically significant among small and large provider groups,” the authors wrote.

The data also found wide variation in prices among providers regardless of insurer and location, which could partially be explained by provider market share. An increase of 10 percentage points in provider market share was associated with a $3.15 increase in visit prices for a service negotiated with the same insurer.

Further consolidation among providers could potentially improve their bargaining power with insurers, resulting in higher negotiated prices. Even if these effects are outweighed by the lower prices negotiated by larger insurers, it remains unclear whether these cost savings are shared with consumers by lowering premiums or providing more comprehensive benefits.

“The study shows that large insurers can help lower the prices paid for care, but we must be vigilant to find ways to make sure that those savings are passed onto consumers,” said study co-author Michael E. Chernew, PhD, who is also a co-editor-in-chief for The American Journal of Managed Care.

The authors listed several potential means of increasing cost-consciousness among patients and promoting provider competition, such as price transparency initiatives, reference pricing, and ongoing monitoring of premiums and plan benefits. They also suggested that insurers can negotiate lower prices without consolidation by using selective contracting, in which enrollees in narrow or tiered networks are steered to certain providers in exchange for lower prices.  


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