Consolidated Provider Networks, Hospital Systems Reduce Payer Costs

A recent study in Health Affairs found that provider networks and hospital systems that concentrated providers resulted in payers having more power to negotiate lower health service costs.

Richard M Scheffler, PhD, professor of health economics and public policy at the School of Public Health at the University of California, Berkeley, and colleagues, studied how provider consolidation under MACRA and hospital system mergers have impacted provider prices in areas where providers are now concentrated under a single administrative umbrella. They used prices of hospital admissions for five specialty types to determine how market concentration and price correlated. 

“We found evidence that in the range of the Department of Justice’s and Federal Trade Commission’s definition of a moderately concentrated market insurers have the bargaining power to reduce provider prices in highly concentrated provider markets,” Dr Scheffler and colleagues wrote.

Specifically, the researchers found that hospital admission costs were 5% lower in areas of high provider concentration. Furthermore, oncology costs were significantly reduced in these areas, at 19% lower. Additionally, cardiology costs were 4% lower and radiology costs were 7% lower.

The researchers did not find any evidence that primary care visits or orthopedic visits were associated lower costs.

Dr Scheffler and colleagues expressed concern that these reductions in cost would simply be absorbed by large payers, instead of being passed on to health care consumers.

“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,” the researchers concluded. “Large purchasers of health insurance such as state and federal governments, as well as the use of regulatory approaches, could provide a solution.” —David Costill