The Growing Power of Some Providers To Win Steep Payment Increases From Insurers Suggests Policy Remedies May Be Needed

Study Questions:

What is the degree of variation in hospital and physician payment rates observed across and within markets, and what are the reasons why leverage has shifted to some hospitals and physician organizations?


The Community Tracking Study, conducted by the Center for Studying Health System Change and funded by the Robert Wood Johnson Foundation and the National Institute for Health Care Reform, is a longitudinal study of 12 nationally representative large metropolitan communities that have been visited approximately every 2 years since 1996. This article is based on interviews in each site conducted with leaders of 3-4 major hospitals—typically the chief executive officer, chief financial officer, chief medical officer, and medical staff president of each institution. In each site, they also interviewed leaders of 2-3 physician groups and major health plans—typically the provider network manager, marketing head, and medical director.


Although there was an overall trend favoring hospitals across the 12 markets, there is much variation concerning which party—plans or hospitals—was perceived as having the upper hand in negotiations. In most markets, so-called must-have hospitals have long had negotiating leverage over health plans. Studied markets with particularly dominant hospitals include Boston, northern New Jersey, Greenville, and Cleveland. In general, the clout derived from must-have status has increased over the past 3 years. Across all 12 markets, intramarket variations in negotiating leverage were substantial.


The authors concluded that hospitals and physicians overall gained increased negotiating leverage over health plans for numerous reasons.


The present study reports that although the broad trend of provider consolidation is a major factor in the growth of hospital and physician-group negotiating leverage with health plans, a number of other factors have also contributed to high payment rate increases. Factors such as employer resistance to choice-limiting networks with few providers, hospital reputation, offering an important unique service, or access in a particular geographic area can contribute to provider leverage as well. Although some policy analysts believe that more intensive government intervention—through rate setting or antitrust enforcement—would indirectly exert downward pressure on provider rates, this study indicates that a broad range of other market and regulatory approaches will need to be examined to address the consequences of growing provider leverage/market clout.

Keywords: Hospitals, Physicians, New Jersey, Boston, Negotiating, Marketing

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