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Each week, Health Affairs Editor-in-Chief Alan Weil brings you in-depth conversations with leading researchers and influencers shaping the big ideas in health policy and the health care industry.
A Health Podyssey goes beyond the pages of the health policy journal Health Affairs to tell stories behind the research and share policy implications. Learn how academics and economists frame their research questions and journey to the intersection of health, health care, and policy. Health policy nerds rejoice! This podcast is for you.
00;00;00;03 - 00;00;35;22
Alan Weil
Hello and welcome to “A Health Podyssey”. I'm your host, Alan Weil. There is some evidence, including in research published in Health Affairs, that health care prices are lower in markets where insurers have more negotiating power. But research on this important topic has been constrained by significant data limitations. New price transparency rules have opened the door to additional analysis of negotiated prices, allowing us to better understand what drives the prices providers are paid.
00;00;36;16 - 00;01;03;00
Alan Weil
Are health insurers with more market power able to negotiate lower prices for hospital services? That is the topic of today's episode of “A Health Podyssey”. I'm here with Anthony LoSasso, professor and chair of the Department of Economics at DePaul University. Dr. LoSasso and colleagues published a paper in the May 2023 issue of Health Affairs, examining the effects of insurer market power on prices paid to hospitals.
00;01;03;15 - 00;01;16;04
Alan Weil
They found that larger insurer market share is associated with lower prices paid with the differences quite significant. We'll discuss these findings in today's episode. Dr. LoSasso, welcome to the program.
00;01;17;09 - 00;01;18;24
Anthony LoSasso
Thank you. Great to be here, Alan.
00;01;19;22 - 00;01;46;03
Alan Weil
This is a great topic of interest to many. But before we get into the findings, I think it's important for our listeners to be familiar with a new source of data that enables this kind of analysis and others. Can you say a little bit about the Hospital Price Transparency initiative? What data does it now make available and how does that help us answer questions that maybe we couldn't have answered before we had these data?
00;01;46;19 - 00;02;24;15
Anthony LoSasso
The Health Care Price Transparency Initiative started in the Trump administration and took effect January 2020, and all hospitals were required to report their actual contract rates between insurers for all of their services. So this is a remarkable, that's a remarkable thing. We can talk about it more. But initially I'll say that hospitals were not super excited to release this information.
00;02;24;28 - 00;02;43;21
Anthony LoSasso
So it did take some time. It took a little bit of took a little prodding from the Biden administration, I think, to get hospitals to actually do the follow through necessary to put their information out there so that researchers like me and others can have access to this.
00;02;44;26 - 00;03;13;26
Alan Weil
So negotiated prices have been a well-kept secret, and neither the payor side nor the provider side was enthusiastic about sharing that and sometimes barred from doing so. But here we have these new data. Now, you looked at variation across insurers, but before we even get to that dimension, when you just look at these negotiated prices for certain services, which did you look at and what did you see with respect to variability?
00;03;14;29 - 00;03;46;10
Anthony LoSasso
Well, one of the things you see that just hits you in the face is just how much variation there is in contract prices across hospitals and within hospitals. So hospitals are receiving wildly different contract amounts from payors and it's something that definitely comes out. And there have been some articles written about this in the popular press.
00;03;47;07 - 00;03;56;14
Anthony LoSasso
We, as you mentioned, wanted to go a little bit deeper and kind of see how this related to the insurer market in states.
00;03;56;28 - 00;04;20;07
Alan Weil
So just at the outset, I have to say, you know, we hear a lot about so-called cost shifting. The economists don't give a lot of credence to this hypothesis. But certainly when you run a hospital, you look at the lower levels of payment by Medicaid and Medicare and say you have to charge higher prices to commercial payors to offset those low rates.
00;04;20;19 - 00;04;31;28
Alan Weil
But what you're saying here is there isn't just sort of a higher price paid by commercial. There are a lot of different prices paid by different commercial payors. Is that how I understand this?
00;04;32;10 - 00;04;55;08
Anthony LoSasso
That's absolutely right. There's tremendous variation across payors, all, you know, all on the private side here. So we're talking about different private insurers paying very different amounts for the same service to the same hospital. It's really interesting and kind of, you know, trying to think about where do these, where does this variation come from? What's driving that?
00;04;55;08 - 00;05;00;16
Anthony LoSasso
What's really one of the motivating or the motivating factors for us as we undertook this?
00;05;00;29 - 00;05;30;17
Alan Weil
So let's get into some of that motivation. Now, an obvious dimension, or I should say an important dimension, is that there's another entity sitting across the negotiating table from these hospitals, and it's the payor, the insurer, and they bring certain clout to that discussion in terms of how their decisions to include the hospital in the network and what rates they're going to pay.
00;05;30;26 - 00;05;40;14
Alan Weil
It's a complicated transaction. So what did you find about the role of the insurer and their market power in these prices?
00;05;40;27 - 00;06;11;03
Anthony LoSasso
I think to step back a moment, one thing that is really important to note, when we look at the health insurance market is that it is very concentrated. Maybe that's not a surprise to a lot of your listeners and to Health Affairs readers, but fully a third of states have the top insurer in the state with a market share in excess of 70%.
00;06;11;09 - 00;06;52;21
Anthony LoSasso
It's very concentrated. And I think maybe contrary to what some people think, it's predominantly dominated by the blues. So Blue Cross Blue Shield insurers are the top insurer. This is according to, we didn't do this, but this is according to Kaiser Family Foundation information that the top insurer for 40 of 50 states are blues and in many cases, it's quite enormous. In at least a handful of cases, we're talking 90 plus percent of the large group market is a single insurer.
00;06;53;11 - 00;07;21;01
Alan Weil
You know, I have seen in the local paper where I am sort of these fights right at the end of the plan year about whether the local hospital is going to be included in the network of a particular large carrier that serves a lot of people in the area. So is that concentration basically means that that carrier can decide whether or not a large number of people are going to get services at that hospital.
00;07;21;01 - 00;07;34;28
Alan Weil
That seems like a strong negotiating power. But the hospital has a lot of local support. And so they bring their own negotiating power here. So how does this all play out?
00;07;35;09 - 00;08;02;29
Anthony LoSasso
Yeah. So, I know, that's a great point. And it is super complicated, of course. I mean, you know, you have basically, as you alluded to, this bilateral bargaining process that's going on and it is, you know, each side taking their relative weight in their respective markets and saying you have to negotiate with us. You can't avoid us, you need us.
00;08;02;29 - 00;08;32;08
Anthony LoSasso
And they're both saying that to each other. We, of course, don't get into all the nuance of how that bilateral bargaining process works because that's above our pay grade here. But what we can say is that, yes, in many markets, hospitals, hospital systems are going to command a significant amount of clout to have a lot of market power themselves.
00;08;32;27 - 00;09;06;11
Anthony LoSasso
And sitting across from them are often going to be insurers who also have a lot of market power and clout. So what we observe then is just the end result of that. And so how much lower are prices paid to hospitals in a market where the insurer is in the top tercile, so the top third essentially, of market share versus if that everything else was the same,
00;09;06;11 - 00;09;27;02
Anthony LoSasso
but you were in a market where the insurer had a market share in the lowest tercile. And so what we see is that prices on average are about 15% lower in that instance. So the high market share associated with 15% lower prices for hospital services.
00;09;28;09 - 00;09;29;23
Alan Weil
That's a huge difference.
00;09;30;20 - 00;10;10;03
Anthony LoSasso
It is big. It's big. And, but you know, I struggle a little bit and my coauthors as well on, well, is it big? I don't know. If you're a hospital that has 90, sorry, if you are an insurer that has 90% of the market, is 15 big? I don't actually know. I'm not sure what the benchmark that against, but it's certainly interesting and you do see variation across type of hospital, it’s a smaller difference for not-for-profits; it's a considerably bigger difference for for-profit hospitals.
00;10;10;15 - 00;10;47;21
Alan Weil
So I'm really, I appreciate the humility about whether 15 is the right number, even if we can agree that it's a lot of money. But let's talk about the implications of these findings in your last note about hospital ownership. We'll dig into those topics in a little more detail after we take a short break. And we're back.
00;10;47;22 - 00;11;18;19
Alan Weil
I'm speaking with Dr. Anthony LoSasso about insurer market power and hospital prices. So right before the break, we learned that the prices are 15% lower in areas where the insurers are highly concentrated relative to less concentrated and appropriately I said, that's a lot. You said, well, I don't know. And so I have, this is an area where it's hard to go in with an assumption of what the right amount is.
00;11;19;21 - 00;11;32;12
Alan Weil
But it's a difference that’s certainly meaningful. And then you also mentioned that the hospital ownership matters. Can you just say a little bit more about that? Just to refresh our minds?
00;11;33;00 - 00;12;07;08
Anthony LoSasso
Yeah, absolutely. So if we're looking at not-for-profit hospitals, you see more like a 7% difference. If you look at for-profit, we're talking close to 30, actually over 30%, difference in the high concentrated insurance markets. So that's really big. It's probably, again, because we don't know what's happening in that sausage making process there of the bilateral negotiation I talked about.
00;12;08;13 - 00;12;30;01
Anthony LoSasso
But it could very well be picking up something like not-for-profit hospitals tend to be much larger than for-profit hospitals. And there's likely some, you know, some considerable difference there in the bargaining power of the for-profits relative to the not-for-profits and so 30%, yeah that's big.
00;12;32;08 - 00;12;38;09
Anthony LoSasso
And 7% or so, also pretty big. Certainly not as big though.
00;12;39;10 - 00;12;59;20
Alan Weil
Yes. And I think what often happens when we have new data and new findings is that it is hard to know what our expectations should have been, but it gives us some sense of the scale and background for some of the other work that might be done to go inside those negotiating rooms and try to get a sense of what's at play.
00;12;59;29 - 00;13;20;03
Alan Weil
Now, as a consumer, I sit here and think, well, good for those big insurance companies. They're getting lower prices. We all complain that prices in health care are too high. So I guess I should want bigger insurers. But you mentioned in the paper that it's a little more complicated than that. Can you say why?
00;13;21;06 - 00;13;48;20
Anthony LoSasso
Yeah. So on the surface you might say, yeah, lower prices. That’s good. Yeah, those hospitals have it coming, right? But no, the real question I think is what does the insurer do with that 15% lower price that they pay? Do they, yeah, they’re passing it on to you, the consumer, in the form of 15% lower premiums.
00;13;49;09 - 00;14;15;03
Anthony LoSasso
Well then, yay. That's a good, that's probably a good outcome. But there's no guarantee that that's happening. And I also don't, I can't sit here and assure you that it is happening because I don't know the answer to that question. I think that's a great question for future researchers to dig into. It's something I would certainly like to look into.
00;14;15;26 - 00;14;36;08
Anthony LoSasso
And it really, you know, it, but it's easy to say, well, why would, if you're a 90% market share insurer or, why would you pass it on? I mean, it's not a competitive market. And so yeah, I do worry about that piece of it for sure.
00;14;37;02 - 00;14;57;26
Alan Weil
Yeah. At least from an economic theory perspective, you'd say that the bigger the carrier is, the easier it is for them to retain some of that money and not pass it on to people like you and me who want to buy insurance. So you kind of you get squeezed maybe here with your the hospitals getting squeezed on one end and we're getting squeezed on the other.
00;14;58;11 - 00;15;26;06
Alan Weil
At least that's a possibility. I understand the data don’t demonstrate that with clarity. So, look, these new data throw sort of the whole negotiating environment into a different state. And I acknowledge that the data are still new. They're imperfect, there're gaps. They're not all hospitals. There's all kinds of things we don't have here. But as you pointed out at the outset, there's a lot of resistance, particularly by the hospitals, to release these data.
00;15;26;16 - 00;15;41;12
Alan Weil
So as you think about what effect having the kind of information that you have been able to draw from these, what kind of effect that will have as these negotiations proceed. Do you have any thoughts about that?
00;15;42;04 - 00;16;11;11
Anthony LoSasso
Yes, it's a great question. And the implications of having these negotiated prices out in the public now, not only for people like you and I to see, but for other insurers to see, for other hospitals to see that you compete with in your market, that's complicated. And health economists have thought about this for a number of years.
00;16;12;09 - 00;16;55;15
Anthony LoSasso
This is where many health economists will probably bring up Danish cement markets, which I knew you were dying to get into here on the “A Health Podyssey” podcast, just because the, what am I talking about? There is research on price disclosure, but it's very rare because it doesn't happen very much. But it just so happened that in the nineties the Danish government tried to improve competition in the cement market and forced the producers to disclose their prices.
00;16;55;15 - 00;17;24;22
Anthony LoSasso
And then what happened was that prices rose 15 to 20% as everybody got a look at what their competitors were charging and so a lot of people do worry that in this, in some aspects of this Danish cement market study could translate over into health care. And so I think that's something that people will be watching closely.
00;17;24;29 - 00;17;53;10
Anthony LoSasso
Again, we only really have about a year or so of these price transparency data out there. I think people will be looking to see what happens in future years as the data become more longitudinal in nature. We start seeing how hospitals respond, how insurers respond. I think it's, it really leads to a lot of super interesting questions there.
00;17;53;28 - 00;18;21;22
Alan Weil
Yeah, you know, as long as I've been doing health care, which is a long time, I've heard that we need the markets to function better and markets need information. And prices are an important source of information. All of that may be true, but negotiations are complex. And as you say, having these data could potentially provide leverage for those who are trying to negotiate higher prices, not just leverage to reduce them.
00;18;22;05 - 00;18;45;25
Alan Weil
And we really don't know how that's going to play out. So as we come to our close here, we've both mentioned a number of times how new these data are and how many questions they raise. I wonder if you could say a little about what's next on your question list to try to work with these and maybe other data to give us more understanding of how these markets function?
00;18;47;01 - 00;19;27;15
Anthony LoSasso
Well, I certainly already mentioned that I think the real big question is how do these price differences translate into premium differences? That's something I would, that I am looking into and would love to continue to explore. I am already really interested to see if the data for individual hospitals can be put together, maybe it might only be for the early reporters and to see if you could build, if one could build more of a longitudinal data set that shows prices over time for the same procedures to the same payors.
00;19;28;08 - 00;19;59;17
Anthony LoSasso
So I think those are two areas that I think are really interesting for me personally. You know, I think it's, you know, I guess a question back to you know, you raised it around well, can consumers benefit from this? Certainly not in the form that they take now. The hospitals put a lot of huge files, very difficult to, very unwieldy, very difficult to work with.
00;19;59;28 - 00;20;34;10
Anthony LoSasso
I'm curious to see if there could be some third party entities, kind of a good Rx sort of model, but for health care services obtained at hospitals and elsewhere, that could serve as a guide to consumers. That's a little more speculative, but I think the people who originally envisioned the price transparency initiative ultimately hope that this would go in a consumer-friendly direction.
00;20;34;10 - 00;20;38;13
Anthony LoSasso
And so that's interesting as well to watch that unfold.
00;20;39;08 - 00;21;09;00
Alan Weil
Yes. Well, we have only seen the beginning, and it's great to think about what the potential is here and to not mistake the short term lack of usability with the potential for long term applications far beyond what we have today. Dr. LoSasso, thank you for being an early one to dig into these new data and to help us make sense of them to deepen our understanding of how these markets work and for being my guest today on “A Health Podyssey”.
00;21;10;07 - 00;21;11;28
Anthony LoSasso
My pleasure. Thanks very much, Alan.