Health Affairs: Market Share Matters in Price Negotiation


As the Department of Justice takes on the Anthem/Cigna and Humana/Aetna mergers, a new study published in the January issue of Health Affairs provided fresh evidence regarding the effects of payor market share and physician practice size on the prices payors negotiate with physicians.

Theory and evidence suggest that insurers with the market clout to direct large numbers of patients to physicians are able to negotiate lower prices with providers; and research indicates that provider consolidation leads to higher health care prices. That research, however, has been limited by the lack of data detailing prices negotiated between specific providers and different payors.

Roberts et al used provider- and insurer-specific price data contained in a new multi-payor claims database compiled by FAIR Health provides definitive proof that a payor’s market share has a direct relationship to the size of the price discount negotiated with a provider. Likewise, the larger the provider practice, the smaller the discount they were required to accept.

The researchers measured variation in the prices that different insurers with different market shares negotiate with individual providers for physician services in office settings. By comparing the prices different insurers negotiate with the same providers, they were able to isolate factors impacting price, including payor market share and provider size.

The FAIR Health database includes claims from about 60 national and regional payors in all 50 states. The researchers constructed average prices for three commonly billed office visits—CPT codes 99213, 99214, and 99215—representing 21% of office claims, including claims from specialists and primary care physicians.

Roberts et al estimated that payors with market shares of 15% or more (average: 24.5%) negotiated prices for office visits that were 21% lower than prices negotiated by payors with shares of less than 5%.

Their analyses also suggested that payors require greater market shares to negotiate lower prices from large provider groups than they do when negotiating with smaller provider groups. Average prices for office visit for small practices, for example, were $88, $72, and $70, for insurers with market shares of <5%, ≥5% to <15%, and ≥15%, respectively. Prices for large provider groups were $97, $86, and $76, decreasing as a payor’s market share increased.

“These results 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,” the researchers wrote.  “Continued monitoring will be important for determining the net effects of the countervailing trends of insurer and provider consolidation on the affordability of health care.”