Blog | Contracting

Study: In price negotiations with hospitals, self-insured employers lack leverage

Blog | Contracting

Study: In price negotiations with hospitals, self-insured employers lack leverage

The vast difference in market power between hospitals and employers leaves the latter group with little recourse in negotiations, according to a new study.

Hospitals have the advantage in negotiations with self-insured employers, which struggle to exert market power in a way that affects prices, according to a new study.

As reported in the American Journal of Managed Care, researchers examined the association between an employer’s market power and negotiated hospital prices. The association “becomes statistically insignificant once the models control for hospital wages,” wrote researchers with the Bloomberg School of Public Health at Johns Hopkins University.

The researchers quantified employer market power through a complex calculation that was described as similar to the Herfindahl-Hirschman Index (HHI). Hospitalization prices were based on an examination of commercial claims data in a given metropolitan statistical area (MSA).

During the study period, 2010-16, “the average employer market was very unconcentrated,” the researchers wrote. Across MSAs, the average value of employer market power on the research team’s scale was 62, compared with 5,410 for hospital market power; a market score of 2,500 or higher in the HHI is considered “highly concentrated.”

Higher levels of employer market power typically were seen in smaller cities. Among the 10 most concentrated MSAs for employer market power, average hospital prices generally were below the mean but varied from one market to the next by nearly $15,000.

The researchers found a statistically significant relationship between employer market power and hospital prices both before and after controlling for market factors such as demographics, employment rates and concentrations of insurers and hospitals.

However, the statistical relationship weakened substantially when controlling for hospital wages within a market based on CMS’s hospital wage index, “which has an extremely strong relationship with prices,” the researchers wrote.

With that statistical dichotomy in mind, the researchers concluded, “We do not find evidence that employers are using bargaining power to negotiate lower hospital prices.”

Other potential negotiating options

“Our study suggests that almost all employers, operating alone, simply do not have the market power to impose a threat of effective negotiation,” the researchers wrote. They noted that insurers may negotiate — but not always effectively — in their role as providers of administrative services. However, “alternative approaches may be needed to constrain hospital prices for self-insured employers.”

Contracting with designated centers of excellence and offering high-deductible health plans are strategies that some employers have used to mitigate their healthcare spending, but “the effectiveness of these tactics can be limited by local hospital market concentration,” the researchers wrote.

A less conventional strategy would be for employers in a market to join together in a purchasing alliance, the researchers wrote, perhaps in combination with public-sector agencies to ensure sufficient market share.

About the Author

Nick Hut

is a senior editor with HFMA, Westchester, Ill. (

Sign up for a free guest account and get access to five free articles every month.


Related Articles | Contracting

News | Labor Cost Management

News Briefs: Hospital labor costs rose by almost 40% between 2019 and early 2022

As published in hfm magazine, a monthly roundup of top news for healthcare finance professionals.

News | Pricing

Hospital prices increasingly are coming under a microscope

Newly issued reports and policy recommendations are examining hospital prices in the context of high healthcare costs.

Blog | Contracting

2023 regulations for Medicare Advantage and ACA marketplaces seek to enhance network adequacy standards

HHS and CMS recently released sets of 2023 regulations that affect provider network adequacy standards in Medicare Advantage and the Affordable Care Act insurance marketplaces.

News | Pricing

Healthcare pricing update: 2 experts call for greater regulation

Recent price increases have been slower in healthcare than in the economy at large, but two healthcare economists say the long-term price trends should be addressed through regulation.