Big Health Plans Can Negotiate Lower Hospital Costs:
THURSDAY, Sept. 8 (HealthDay News) -- The bigger the health
plan, the lower the hospital costs, a new RAND Corp. study
The researchers found a roughly 12 percent drop in hospital
prices in cities with the fewest health plans. The reason for this
decline, they said, is that larger health plans are better able to
negotiate lower prices from health providers. This consolidation,
the study concluded, may be an advantage for consumers.
"There may be a benefit for consumers when health insurance plans are more consolidated because it tends to drive down hospital costs," Glenn A. Melnick, an economist at RAND and the Blue Cross of California Chair in Health Care Finance at the University of Southern California School of Policy, Planning and Development, said in a RAND news release. "As long as there is enough competition to keep health plans honest, the consolidation has a good result on prices."
The study, published in the September edition of the journal
Health Affairs, revealed, however, that very few hospitals operate in areas with only a few main health plans. The researchers found that 64 percent of hospitals are located in cities where health plans have not tended to consolidate. In comparison, just 7 percent of hospitals are in areas with the most-concentrated health plans.
In conducting the analysis, the researchers examined information
about health plans, hospitals and health costs in American cities
in 2001 and 2004. Although they found that on average greater
consolidation of health plans is associated with lower hospital
prices, the same was not true for hospitals.
The research showed regions where hospital ownership is more
consolidated tend to have higher hospital prices. This is
significant since more than 90 percent of all hospitals operate in
areas where hospital ownership is more consolidated than health
However, hospital prices can be cut with more health plan
consolidation, the authors added. This reduction in costs is most
dramatic in areas with just a few primary health plans, they
As states begin to regulate health insurance premiums under the
Affordable Care Act of 2010, the study's findings may have
implications for national health policy, the researchers pointed
"Our findings suggest that if policymakers are interested in lowering costs, they should find a way to restore competition among hospitals, in addition to assuring competition among health plans," Melnick stated. "There has been great consolidation among hospitals and physician practices, and that consolidation has allowed hospitals and doctors to raise prices," he explained in the news release.
The study authors also noted that the American Medical
Association has suggested that allowing physicians to participate
in price negotiations with health plans without fear of antitrust
prosecution would help protect their interests and preserve the
quality of health care.
RAND is a nonprofit institution whose stated mission is to
improve policy and decision making through research and
The U.S. National Library of Medicine has more about
health care costs.
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