Large Self-insured Employers Lack Power to Effectively Negotiate Hospital Prices
July 13, 2021Matthew D. Eisenberg, PhD, Mark K. Meiselbach, BS, Ge Bai, PhD, CPA, Aditi P. Sen, PhD, Gerard Anderson, PhDThe American Journal of Managed Care, July 2021, Volume 27, Issue 7
Results: Large self-insured employers had concentrated market power in very few MSAs in 2016. The mean value of our employer market power measure was 62 for 2016, compared with the mean value of 5410 for hospital market power in the United States. Regression analyses find a slight relationship: A 1-point increase in employer market power was associated with a $6.61 decrease in the hospitalization price (mean = $20,813), but this result becomes statistically insignificant once the models control for hospital wages.
Conclusions: Employer market power is low in most MSAs. Self-insured employers may consider building purchase alliances with state and local government employee groups to enhance their market power and lower negotiated prices for hospital services.
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Instead of directly negotiating prices, some large self-insured employers have adopted other approaches to contain their health care spending, such as directing patients toward centers of excellence,35 improving incentives for in-network care, offering high-deductible health plans in combination with personal medical accounts,36 and changing drug formularies to encourage generic drug usage.37 However, the effectiveness of these tactics can be limited by local market hospital concentration, which forces employers to accept the prices that hospitals charge.
