The effect of physician and health plan market concentration on prices in commercial health insurance markets

Int J Health Care Finance Econ. 2008 Mar;8(1):13-26. doi: 10.1007/s10754-007-9029-4.


The objective of this paper is to describe the market structure of health plans (HPs) and physician organizations (POs) in California, a state with high levels of managed care penetration and selective contracting. First we calculate Herfindahl-Hirschman (HHI) concentration indices for HPs and POs in 42 California counties. We then estimate a multivariable regression model to examine the relationship between concentration measures and the prices paid by HPs to POs. Price data is from Medstat MarketScan databases. The findings show that any California counties exhibit what the Department of Justice would consider high HHI concentration measures, in excess of 1,800. More than three quarters of California counties exhibit HP concentration indices over 1,800, and 83% of counties have PO concentration levels in excess of 1,800. Half of the study counties exhibited PO concentration levels in excess of 3,600, compared to only 24% for plans. Multivariate price models suggest that PO concentration is associated with higher physician prices (p < or = 0.05), whereas HP concentration does not appear to be significantly associated with higher outpatient commercial payer prices.

Publication types

  • Research Support, Non-U.S. Gov't
  • Research Support, U.S. Gov't, Non-P.H.S.

MeSH terms

  • California
  • Catchment Area, Health / economics
  • Catchment Area, Health / statistics & numerical data
  • Commerce / economics*
  • Commerce / statistics & numerical data
  • Contract Services
  • Economic Competition / organization & administration*
  • Health Care Sector / organization & administration*
  • Health Services Research
  • Hospital Departments / economics
  • Humans
  • Insurance, Health / economics*
  • Insurance, Health / statistics & numerical data
  • Societies, Medical / economics*
  • Societies, Medical / statistics & numerical data