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January 20, 2017

Study: Insurers with larger market share negotiate lower payments

Daily Briefing

Market share plays a significant role in price negotiations among insurers and provider groups, according to a new study published in Health Affairs.

Study details

For the study, researchers examined FAIR Health, a multipayer claims database, to determine how much commercial health plans paid for three commonly billed physician visits that ranged from moderate length to longer visits for more complex cases. Overall, researchers assessed data on 10 insurers and about 15 million provider visits that occurred in 2014. Medicare and Medicare rates were not included.

The study defined market share size as the share of commercial enrollment in a given provider's county.


The study found insurance companies with less than 5 percent of market share on average paid physician practices $86 for a basic, moderate-length office visit. Those with 5 to 15 percent of market share paid just $70 for the same type of visit.

However, amounts paid for such an office visit varied by provider group size. For example, when negotiating with smaller provider groups, insurers with:

  • Less than 5 percent of market share paid $88;
  • 5 to 15 percent paid $72; and
  • More than 15 percent paid $70.

When negotiating with larger provider groups for a basic, moderate-length office visit, insurers with:

  • Less than 5 percent of market share paid $97;
  • 5 to 15 percent paid $86; and
  • More than 15 percent paid $76.

The study found that this trend also applied to more complex visits.

According to the researchers, for every 10 percentage points provider groups hold in market share, insurer payments increased by an average of $3.16 for uncomplicated visits and $6.23 for complicated visits.

Overall, the researchers wrote that the study findings add "to a growing body of evidence that health care costs are affected by the bargaining power of providers and insurers." Insurers with "substantial bargaining power" on average pay lower rates, but "large provider groups have bargaining power that mitigates insurers' ability to pay lower rates—or, equivalently, that requires greater insurer market power to counteract," the researchers wrote.


The researchers tied the findings to consolidation in the provider and insurer markets, stating that recent moves have "renewed concerns about the effects of market concentration on commercial health care prices."

They wrote the study's findings "suggest that mergers of health insurers could lower the prices paid to providers, particularly providers large enough to obtain higher prices from insurers with modest market shares."

However, the researchers said the results do not imply that antitrust laws regarding insurance mergers should be loosened to counteract increasing provider consolidation. More mergers among insurers could in turn lead to more provider mergers, "whose countervailing effects on price negotiations might not ultimately lead to a net decline in prices," the researchers wrote.

Further, the researchers said that "mergers might not ultimately reduce the costs of care borne by consumers because the savings that insurers realize from negotiating lower prices might not" be passed on to consumers.

They concluded, "Additional policies that remedy the consequences of a lack of competition among insurers and providers might be needed to limit the influence of market power on health care spending" (Emery, Reuters, 1/9; Livingston, Modern Healthcare, 1/9; Roberts et al., Health Affairs, January 2017).

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