Few physicians can avoid dominant health insurers

When health insurance companies want to renew or set new contracts with Pikes Peak Urology in Colorado Springs, Colo., they simply don't dictate a fee schedule and send it over for a physician's signature.

Urologist Jeff Moody, MD, who works at the four-physician practice, said that's because no one insurer in Colorado Springs has the market power to dictate payment rates.

"Every year it's a discussion; it's not a one-way street," said Dr. Moody, immediate past president of the El Paso County Medical Society.

But he knows his experience is not the norm. Competitive insurance markets are rare these days.

Colorado Springs is the least concentrated metropolitan commercial health insurance market, according to the latest health insurance market competition analysis by the American Medical Association.

In 96% of markets, one insurer controls at least 30% of the market for PPO and HMO coverage. In nearly half of metropolitan areas, one insurer controls 50% or more of the commercial insurance market.

"The market power of health insurers places physicians and patients at a significant disadvantage," said AMA President Cecil B. Wilson, MD. "When insurers dominate a market, people pay higher health insurance premiums than they should, and physicians are pressured to accept unfair contract terms and corporate policies, which undermines the physician role as patient advocate."

The report's findings are based on enrollment data from Jan. 1, 2008, gathered by HealthLeaders-InterStudy and analyzed by the AMA. The report gives a Herfindahl-Hirschman Index score for every state and metropolitan area.

The score is calculated using the number of plans active in a given location and their relative market shares. The HHI score ranges from zero to 10,000, with 1,800 and higher rated "highly concentrated."

The "highly concentrated" designation is based on 1997 horizontal merger guidelines issued by the Federal Trade Commission and Dept. of Justice. The guidelines were updated in August 2010, after the AMA report's deadline. The threshold for a market to be considered "highly concentrated" was raised to an HHI score of 2,500 to reflect the actual level at which regulators would give greater scrutiny of a potential merger.

Under the old guidelines, 99% of the 359 metro markets studied were highly concentrated. Under the new guidelines, 80% would be highly concentrated, and the rest considered moderately concentrated.

Competition helps physicians

At his practice, Dr. Moody said Medicare covers the greatest share of his patients, with 28% of his payer mix. No other company comes close, so he and his partners can reject a contract without fear of losing or inconveniencing too many patients.

Besides Colorado Springs, with an HHI of 1,611, the other area that falls short of being "highly concentrated" under the old guidelines is the Poughkeepsie-Newburgh-Middletown, N.Y. area, with an HHI of 1,733.

"[Here] it's not like Alabama, where there's Blue Cross Blue Shield and ... nobody," Dr. Moody said.

As has been the case in the last several market share reports, Blue Cross and Blue Shield of Alabama dominates the market in that state. It holds 93% of the market for PPO and HMO insurance. HHI scores for Gadsden and Dothan, Ala., are above 9,000.

Despite the report's findings, insurers say there is no market concentration problem in their industry.

"Competition is vigorous among health plans across the country," Robert Zirkelbach, a spokesman for trade group America's Health Insurance Plans, said in a statement in response to the AMA's study. "Research examining competition in health care markets increasingly points to provider consolidation as a significant factor contributing to rising health care costs."

But the AMA report said physicians are usually at a disadvantage when negotiating with insurance companies and noted that almost half of physicians work in practices of less than five physicians.

"To help restore a competitive balance to health insurance markets, the AMA urges the federal and state agencies to prohibit harmful insurance company mergers and adopt policies that would level the playing field between small physician practices and large insurers," Dr. Wilson said.

The Justice Dept.'s antitrust division recently indicated it would be tougher on proposed mergers.