Logrolling and market power in contract talks

Typically, full service health insurance companies will have several clusters of business. There is the low cost government cluster of Medicaid and SNP managed care. There is the medium cost government supported sector of Medicare Advantage, CHIP and low cost Exchange plans. And then there is the higher premium cluster of employer sponsored fully insured (ESI) plans and Administrative Services Only (ASO) self-insured employer plans. I worked at a full service firm. I was on the Medicaid geek team for the last three years.

Recently, I brought up the Rogers, Chernew and McWilliams Health Affairs paper on the impact of market power on local level provider and insurer pricing. They were only looking at employer sponsored insurance market power. They found what was to be expected. Entities with high relative market power got “better” rates from their point of view compared to entities with low market power. This was a good set of results as they were able to math up the trade-offs and attach some real numbers to the intuition.

My question though is how to account for the results if we are to assume that log-rolling in negotiations occurs?

An insurer might have a low market share for the high premium ESI/ASO market in a region. That same carrier could have a very high market share of the Medicare Advantage market. If that carrier is talking with a hospital that has never been in network to sign a comprehensive, all products contract, does the negotiation’s plausible agreement region get defined by each line of business’s relative market share or is the plausible agreement region defined solely by a blended dollar weighed market share?

More practically, does a hospital say that in order to get a stream of the Medicare Advantage money they’ll take lower than anticipated by RCM commercial rates or the carrier offer slightly higher Medicare Advantage rates to buy access for the employer side plans?

My intuition is that this type of log-rolling happens a lot. So how does it get measured and evaluated?

I don’t know.

About David Anderson
I am a research associate at the Margolis Center for Health Policy. I've written about health policy at Balloon-Juice.com as Richard Mayhew where I've enjoyed explaining the logic behind why an insurance company is behaving the way it is as there is almost always a reason besides pure spite or evil.

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