• Richard M Scheffler and Daniel R Arnold.
• Richard M. Scheffler (rscheff@berkeley.edu) is a distinguished professor of health economics and public policy at the School of Public Health and the Goldman School of Public Policy, and director of the Nicholas C. Petris Center on Health Care Markets and Consumer Welfare at the School of Public Health, all at the University of California, Berkeley.
• Health Aff (Millwood). 2017 Sep 1; 36 (9): 1539-1546.

AbstractUsing prices of hospital admissions and visits to five types of physicians, we analyzed how provider and insurer market concentration-as measured by the Herfindahl-Hirschman Index (HHI)-interact and are correlated with prices. We found evidence that in the range of the Department of Justice's and Federal Trade Commission's definition of a moderately concentrated market (HHI of 1,500-2,500), insurers have the bargaining power to reduce provider prices in highly concentrated provider markets. In particular, hospital admission prices were 5 percent lower and cardiologist, radiologist, and hematologist/oncologist visit prices were 4 percent, 7 percent, and 19 percent lower, respectively, in markets with high provider concentration and insurer HHI above 2,000, compared to such markets with insurer HHI below 2,000. We did not find evidence that high insurer concentration reduced visit prices for primary care physicians or orthopedists, however. 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. Large purchasers of health insurance such as state and federal governments, as well as the use of regulatory approaches, could provide a solution.Project HOPE—The People-to-People Health Foundation, Inc.

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