Home » Latest ITUP News » Provider Market Power and Cost Containment

Provider Market Power and Cost Containment

ITUP’s report on the impacts of provider market power and healthcare cost containment, authored by Vishaal Pegany, is now available.

While more individuals are covered by insurance, the rate of health care cost growth continues to outpace economic growth, resulting in higher premiums and deductibles. It is imperative to make health care more affordable through structural changes in the way health care is delivered and financed. It is important to note that cost containment efforts are not new. Prior to the ACA, there have been various and ongoing approaches that aim to lower health care costs, such as consumer driven approaches that include high deductible health plans paired with health savings accounts. These approaches have been met with mixed results and illuminate that there is no single panacea to cost containment.

Because the U.S. has a multi-payer health care system, commercial prices are the result of negotiation between providers and payers. Publicly funded programs (e.g., Medicaid and Medicare), use administratively set prices. In this negotiating process between payers and providers, an increasing body of research links higher health care prices to the leverage providers have in obtaining higher payments from payers, a phenomenon referred to as “provider market power.” Provider market power has been linked with increased unit prices for services and higher utilization of outpatient services.When provider market is left unconstrained, this effectively limits the ability of payers to negotiate prices.

This report will be organized as follows:

  • Part 1 presents the California context and the need to address the looming health care cost crisis;
  • Part 2 explains the relationship between high health care prices and provider market power;
  • Part 3 discusses the regulatory and market factors that are increasing greater clinical integration among providers, the recent wave of provider consolidations at the state and national level, the impact of the St. Luke’s case, and alternatives to ownership such as joint ventures;
  • Part 4 discusses the four strategies for addressing provider market power: encouraging transparency in health prices and quality, encouraging competitive health plan contracting, monitoring and regulating prices, and establishing a state health policy commission; and
  • Part 5 recommends the establishment of the California Health Policy Commission, an independent commission dedicated to developing and implementing policy for cost containment, including better controls on provider market power.

Download: Provider Market Power and Cost Containment