More competition among physicians related to lower prices paid by private PPOs

(Press-News.org) An examination of the relationship between physician competition and prices paid by private preferred provider organizations (PPOs) for common office visits finds that more competition is associated with lower prices paid to physicians in 10 large specialties, according to a study in the October 22/29 issue of JAMA.

Physicians are increasingly moving away from solo and smaller practices toward larger organizations. These changes may be beneficial if larger practices with more resources are better able to coordinate care, adopt process improvements, increase use of information technology, or take other actions that improve quality of care. At the same time, a trend toward fewer and larger groups could increase what economists refer to as "market concentration," resulting in fewer practices facing less competition and with greater economic power. This in turn could lead health plans to pay higher prices for physician services. However, there is little evidence on the relationship between competition and prices paid for physician services, according to background information in the study.

Laurence C. Baker, Ph.D., of the Stanford University School of Medicine, Stanford, Calif., and colleagues conducted a study that included data from 1,058 U.S. counties in urbanized areas, representing all 50 states. The researchers determined the average price paid by county to physicians in 10 specialties by private PPOs for office visits with established patients and a price index measuring the county-weighted average price for 10 types of office visits with new and established patients relative to national average prices. The specialties were internal medicine, family practice, cardiology, dermatology, gastroenterology, neurology, general surgery, orthopedics, urology, and otolaryngology.

The researchers found that less competition among physician practices was associated with higher prices paid by private PPOs to physicians for office visits. Across 10 types of office visits, the difference in the Hirschman-Herfindahl Index (HHI; an economic competition measure) was associated with average prices for office visits 8.3 percent to 16.1 percent higher. In a more conservative model, this difference in the HHI was associated with 3.5 percent to 5.4 percent higher average prices. "This is consistent with the hypothesis that greater market power allows physicians to bargain for higher prices from private insurance companies."

Examining changes in prices between 2003 and 2010, prices increased more rapidly in areas where practices were initially less competitive than in other areas. In some specialties, declining competition was also associated with larger increases in prices in areas that were initially more competitive. "This pattern suggests the possibility that the results we observe in 2010 may be related to the ability of practices in low-competition areas to negotiate larger price increases over time as well as related to changes in competition over time. This suggests that a lack of competition could have long­lasting effects, continuing to drive future price increases even without further changes in Hirschman-Herfindahl Index," the authors write.

"An association between competition and prices may have important implications for health policy, as pressures to increase practice size persist or even increase in the future. We saw substantial amounts of concentration in the markets we studied, which raises concerns about potentially harmful implications for consumers. Higher health care spending due to increased prices paid to physicians without accompanying improvements in quality, satisfaction, or outcomes would generate inefficiency in the health care system."

"These results may inform the development or adaptation of policies that influence practice competition," the authors conclude. INFORMATION: (doi:10.1001/jama.2014.10921; Available pre-embargo to the media at http://media.jamanetwork.com)

Editor's Note: The National Institute for Health Care Management provided funding to support this work. Please see the article for additional information, including other authors, author contributions and affiliations, financial disclosures, etc.