THURSDAY, Sept. 8 (HealthDay News) -- The bigger the health plan, the lower the hospital costs, a new RAND Corp. study finds.

The researchers found a roughly 12 percent drop in hospital prices in cities with the fewest health plans. The reason for this decline, they said, is that larger health plans are better able to negotiate lower prices from health providers. This consolidation, the study concluded, may be an advantage for consumers.

"There may be a benefit for consumers when health insurance plans are more consolidated because it tends to drive down hospital costs," Glenn A. Melnick, an economist at RAND and the Blue Cross of California Chair in Health Care Finance at the University of Southern California School of Policy, Planning and Development, said in a RAND news release. "As long as there is enough competition to keep health plans honest, the consolidation has a good result on prices."

The study, published in the September edition of the journal Health Affairs, revealed, however, that very few hospitals operate in areas with only a few main health plans. The researchers found that 64 percent of hospitals are located in cities where health plans have not tended to consolidate. In comparison, just 7 percent of hospitals are in areas with the most-concentrated health plans.

In conducting the analysis, the researchers examined information about health plans, hospitals and health costs in American cities in 2001 and 2004. Although they found that on average greater consolidation of health plans is associated with lower hospital prices, the same was not true for hospitals.

The research showed regions where hospital ownership is more consolidated tend to have higher hospital prices. This is significant since more than 90 percent of all hospitals operate in areas where hospital ownership is more consolidated than health plans.

However, hospital prices can be cut with more health plan consolidation, the authors added. This reduction in costs is most dramatic in areas with just a few primary health plans, they noted.

As states begin to regulate health insurance premiums under the Affordable Care Act of 2010, the study's findings may have implications for national health policy, the researchers pointed out.

"Our findings suggest that if policymakers are interested in lowering costs, they should find a way to restore competition among hospitals, in addition to assuring competition among health plans," Melnick stated. "There has been great consolidation among hospitals and physician practices, and that consolidation has allowed hospitals and doctors to raise prices," he explained in the news release.

The study authors also noted that the American Medical Association has suggested that allowing physicians to participate in price negotiations with health plans without fear of antitrust prosecution would help protect their interests and preserve the quality of health care.

RAND is a nonprofit institution whose stated mission is to improve policy and decision making through research and analysis.

More information

The U.S. National Library of Medicine has more about health care costs.