Research is stacking up demonstrating that when hospitals acquire physician groups or other hospitals, prices for healthcare services go up. This trend reflects the very real macroeconomic impact of competition, or the lack thereof, and directly impacts employers and other healthcare purchasers including consumers. They are the ones seeing prices rise by 20%, 30%, even up to 47% for physician services in markets where a merger or acquisition has occurred.

Given that they purchase healthcare on behalf of many Americans, can employers do anything about the rising costs? What role can the purchasers of healthcare play in shaping the competitive landscape around them?

Though policy makers may need to step in where market forces fail, employers should play a significant role as benefit designs and provider network designs adopted by healthcare purchasers, among other factors, can impact the need for providers to compete.

Consider the rise of accountable care organizations, which hold groups of providers collectively accountable for the quality and cost of care delivered to a patient. In theory, the ACO model should promote competition among providers needing to demonstrate that they can deliver low cost, high quality care to be included in the group.


That said, ACOs have also created a new motivation for provider groups to merge or integrate, as increased care coordination across different types of doctors becomes a skillset with upside potential, given that payment arrangements allow them to share in any savings they generate. Some employers are betting that the potential gains in efficiency and quality from ACOs may outweigh the risks associated with consolidation, but the evidence for this to date is weak. If there is sufficient competition among ACOs in a given market, these employers might be more likely to win this bet.

How can employers stimulate competition among providers and control utilization of overpriced health care in tough markets? There are plenty of models that are less murky to consider whose design is structured to stimulate more competition among providers.

Let’s look at some potential strategies:

Tiered or narrow networks: Creating and offering insurance products to employees that provide access to a subset of providers selected for their relative affordability is a potentially powerful way to insert competition among providers (and health plans). Adding a quality component to the selection goes even further. Tiered networks offer advantageous cost sharing when employees choose providers in the more affordable tier. Narrow networks often come with even lower premiums and cost sharing as employee choice is more restricted. Providers don’t want to be in lower tiers or out of network and risk losing volume. In the toughest markets, however, dominant providers successfully prohibit these options by threatening health plans to pull out of their networks altogether.

Centers of Excellence: Some of the country’s largest employers are turning to travel COE programs for high-cost, specialty procedures like spine surgery, bariatric surgery, or oncology. By sending employees, often across several geographic markets, to a carefully vetted provider group, employers are reclaiming negotiating power and prompting providers to compete actively on cost and quality for a given procedure to be selected. In exchange for this spike of volume, they may be willing to offer a lower price or accept new, innovative forms of payment (like a bundled payment). That’s because specialists aren’t just competing with their neighbors to attract patients, but with competing provider groups across the country.

Reference pricing: Reference pricing is another way to stimulate competition among providers within a given region. Let’s say an employer implements reference pricing for knee replacements. Setting a price, based on market analysis, at or below which an employer is willing to pay for a knee replacement, sends a clear signal to providers and undercuts their ability to charge significantly more than their competitors. If surgeons want employees to select them, they need to offer a price that meets or beats the reference price. Otherwise, employees will be the ones bearing the brunt of the higher than competitive price as they pay the full difference over the reference amount.

Telehealth or alternative sites of care: In tough markets, some employers have turned to telehealth providers to increase access and alternatives for care. Others have gone out of their way to open onsite or nearsite clinics, so employees have direct access to services from their workplace. These clinics can also enlist careful referral protocols that steer patients to high value providers where it is feasible. Such models can remind providers that if proactive, employers may have other options for some of the health care services their populations need.

The next time you take a close look at how provider consolidation is impacting your healthcare costs, recognize that there are steps you may be able to take as a healthcare purchaser to try to pursue better value for your health care spending. Educating employees about their options, including price and quality information, and the financial implications of their choices is key to any of these models’ success.

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