The 130th Annual Meeting of APHA

Abstract #39257

Susan R. Snyder, PhD, MBA, Division of Prevention Research and Analytic Methods, Centers for Disease Control & Prevention, 4770 Buford Highway - K-73, Atlanta, GA 30341, 770-488-8294, ssnyder@cdc.gov

Managed care cost savings over the last decade are primarily attributed to discounted medical care prices, however these prices have grown recently at rates exceeding general inflation. Health care market conditions affect managed care’s provider bargaining power, but how? This study is the first to estimate managed care-physician relative bargaining power, and examine how it is affected by market structure, with overall, primary care versus specialty, and high versus low HMO penetration market results.

Market structure characteristics represent HMO penetration and concentration, physician supply, and horizontal and vertical integration, the regulatory environment, and population demographics. Unlike previous studies, managed care payments are used, and results estimated using a simultaneous two-equation bargaining model to account for the endogeneity of non-bargained (undiscounted) and managed care fees. Commercially-insured 1997 fee-for-service claims and Medicare’s relative value scale are used to derive U.S. metropolitan areas' price mark-ups for 59 different physician services.

The findings support managed care plans’ substantial competitive effect, reducing physician fee-for-service mark-ups by 46 percent versus non-bargained mark-ups, increasing to 56 percent for high HMO penetration markets. Physician and managed care relative bargaining power were found to be equal overall (0.5 on a scale of 0 to 1), however when managed care bargaining power is absent, considerable physician market power exists (43 percent Lerner index price mark-up). Physicians have greater market power and less bargaining power for specialist versus primary care services. Pro-competitive market structure effects were associated with greater market-wide and Medicare HMO penetration, physician vertical integration with hospitals and HMOs, and the proportion of international medical graduates, while anti-competitive effects were found for HMO and physician concentration, the percent uninsured, and restrictive state managed care regulations.

Managed care payers greatly increase physician price competition, and their bargaining power is influenced by market structure, which is affected by consumer preferences, private and public health insurance, and government policies. Individuals and health plans lacking bargaining power face largely unchecked physician market power. This implies that the current trend of managed care “lite” has reduced provider price competition, leading to higher medical and health insurance expenses, and more uninsured. Moreover, managed care's bargaining ability determines Medicare and Medicaid managed care enrollees’ expenses, and affects the adequacy of their managed care plan and non-managed care provider reimbursement. Policies contributing to reductions in managed care bargaining power may necessitate increased public spending to obtain adequate patient access in less competitive medical care markets.

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