The Growing Power of Some Providers to Win Steep Payment Increases from Insurers Suggests Policy Remedies may be Needed

In the constant attention paid to what drives health care costs, only recently has scrutiny been applied to the power that some health care providers, particularly dominant hospital systems, wield to negotiate higher payment rates from insurers.

Interviews in 12 U.S. communities indicated that so-called must-have hospital systems and large physician groups—providers that health plans must include in their networks so that they are attractive to employers and consumers—can exert considerable market power to obtain steep payment rates from insurers. Other factors, such as offering an important, unique service or access in a particular geographic area, can contribute to provider leverage as well. Even in markets with dominant health plans, insurers generally have not been aggressive in constraining rate increases, perhaps because the insurers can simply pass along the costs to employers and their workers.

Although government intervention—through rate setting or antitrust enforcement—has its place, the findings suggest a range of market and regulatory approaches should be examined in any attempt to address the consequences of growing provider market clout.