Most Large Self-insured Employers Lack Sufficient Market Power to Effectively Negotiate Hospital Prices


Objectives - Self-insured employers cover more people than Medicare, Medicaid, or direct purchasers of private insurance.This study examined the ability of self-insured employers to negotiate hospital prices and the relationship between hospital prices and employer market power in the United States. Methods - We used the US Census Bureau County Business Patterns data to estimate employer market power at the metropolitan statistical area (MSA)–year level and used the Truven Health MarketScan commercial claims to estimate mean hospital prices and price ratios at the MSA-year level (2010-2016). We calculated descriptive statistics for employer market power, mean hospitalization prices, and a case mix–adjusted price ratio measure during the study period and analyzed the 10 most concentrated labor markets. We estimated MSA-year–level ordinary least squares regressions of hospitalization price and the price ratio measure on employer market power. 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.

American Journal of Managed Care
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Mark K. Meiselbach
Mark K. Meiselbach
Assistant Professor

I am a health economist at the Johns Hopkins Bloomberg School of Public Health in the Department of Health Policy and Management