Catalyst for Payment Reform

Mythbuster: Purchasers Can’t Fight the Wave of Provider Market Power

Mythbuster: Purchasers Can’t Fight the Wave of Provider Market Power

The Covid-19 pandemic had worldwide effects of which we are still feeling the aftershocks today, and in the U.S., the health care industry was especially impacted as it responded to the spread of the virus. This exacerbated a trend already occurring in health care – provider consolidation – and has set off a seemingly unstoppable series of events. 

The pandemic created a financial crisis for small, independent physician practices as their in-person visits and elective services declined. This crisis resulted in reduced quality of care, fewer services being offered and performed, layoffs, and even closures of offices. Believing they couldn’t survive on their own, these providers found the idea of partnering with or being acquired by a larger health system very attractive. 

In addition to this increased merger and employment activity by larger hospital systems, these entities also received the vast majority of Covid-19 relief payments. Hospitals with market power and the ability to raise prices resulted in higher relief payments for those providers. Not to mention that these same hospitals also have millions, even billions, in cash reserves.  While labor shortages and inflation drove up hospital costs, the multiyear nature of provider contracts meant that employer-purchasers didn’t feel the pinch of those rising expenses…until now.  

On the horizon is a massive wave fueled by provider consolidation, increased expenses, and pent-up demand for services (resulting in higher utilization), and it appears ready to break over the industry, bringing with it higher health care prices and [even more] unfavorable market dynamics for employer-purchasers and health plans. Against this wall of provider market power, purchasers may feel powerless with no way to protect themselves but there are both preventive actions and countermeasures they can take to mitigate the impact.  

Over the years, CPR has conducted assessments of geographic markets (mostly metropolitan statistical areas), which examined the dynamics that underlie and shape an area’s health care marketplace.  Through analysis and using CPR’s methodology and typology, we are able to identify which purchasing and payment reform strategies have the best chance of success given the market characteristics.  

Even when hospital systems and physician groups have significant market power, our market assessment approach shows that employer-purchasers and health plans can take both short-term and long-term actions to change the dynamic and work toward specific reforms. In the short-term, employer-purchasers can work with their health plans to implement benefit designs to encourage consumers seek higher value care from higher-value providers.  Examples of such benefit designs include instituting high-performance networks, tiered networks, centers of excellence, care navigation services, and virtual-first health plans.  Employers can also support health plans’ efforts to implement value-oriented payment reforms such as shared risk arrangements that hold network providers accountable for quality and cost targets.  Finally, employer-purchasers can take independent action by contracting directly with providers and work with third-party vendors to implement reference-based pricing. 

In the long-term, employer-purchasers can also look to public policy solutions.  Many states have already implemented legislation to enhance competition and curb provider market power in the areas of antitrust policy, price and quality transparency, competitive plan contracting, monitoring, and regulating consolidation and costs, expanding the authority of the Department of Insurance, and reducing barriers for new market entrants.  

Funded with generous support from Arnold Ventures, CPR’s latest white paper profiles five scenario-based policy menus, designed to help state policymakers, advocacy organizations and other stakeholders navigate through the multitude of policy intervention options and identify those best suited to meet their unique circumstances.  No single policy will protect purchasers from the ill-effects of provider market power, but incremental and complementary policies, should be considered useful tools going forward, and purchasers should consider advocating for (or at least not opposing) such policies.  

In summary, whether it’s taking advantage of short-term solutions to mitigate the impact of consolidation and/or looking to long-term solutions in the form of public policy solutions, purchasers have tools to fight back. CPR would like to bust the myth that purchasers can’t fight the wave of growing provider market power.

CPR’s Assistant Director of Projects and Research, Lea Tessitore, MBA, MSB, wrote this blog post.

Leave a Reply

Contact Us


View Blog Archives