Negotiating Power

A couple of months ago at a symposium at AcademyHealth on the impact of market consolidation on the cost of health care, Robert Berenson provided an analysis of the effect of provider consolidation on negotiating power and health care prices.  Basically it showed that providers have been gaining market power recently. There are three main reasons for this:

  1. A failure of employers to agree to “narrow networks” of providers and thus be able to drive down prices
  2. The end of the oversupply of hospital beds
  3. Provider clout due to name recognition (only for the “have” hospitals, not the have nots.

Further industry consolidation has taken three main forms over the last few years:

  1. Multi-hospital chains are buying more hospitals,
  2. Hospitals are employing more physicians directly, and
  3. Physicians are consolidating into groups.

Physician consolidation is particularly interesting.  Physicians consolidate not only to gain negotiating leverage, but a larger practice allows for physicians to start performing ancillary services such as labs and imaging.