Hospitals' Negotiating Leverage with Health Plans: How and Why Has It Changed?

Abstract

Objective. To describe how hospitals' negotiating leverage with managed care plans changed from 1996 to 2001 and to identify factors that explain any changes. Data Sources. Primary semistructured interviews, and secondary qualitative (e.g., newspaper articles) and quantitative (i.e., InterStudy, American Hospital Association) data. Study Design. The Community Tracking Study site visits to a nationally representative sample of 12 communities with more than 200,000 people. These 12 markets have been studied since 1996 using a variety of primary and secondary data sources. Data Collection Methods. Semistructured interviews were conducted with a purposive sample of individuals from hospitals, health plans, and knowledgeable market observers. Secondary quantitative data on the 12 markets was also obtained. Principal Findings. Our findings suggest that many hospitals' negotiating leverage significantly increased after years of decline. Today, many hospitals are viewed as having the greatest leverage in local markets. Changes in three areas--the policy and purchasing context, managed care plan market, and hospital market--appear to explain why hospitals' leverage increased, particularly over the last two years (2000)(2001). Conclusions. Hospitals' increased negotiating leverage contributed to higher payment rates, which in turn are likely to increase managed care plan premiums. This trend raises challenging issues for policymakers, purchasers, plans, and consumers.

Market power and contract form: evidence from physician group practices

“…our theory argues that the reason for the decline is an increase in physician market power. Also, consistent with this possibility, Devers et al (2003) find that hospitals' negotiating power with managed care substantially increased from the mid-1990s. They attribute some of this increase to employers' desire to have broader provider networks in their health plans.…”

The Cost-Shift Payment ‘Hydraulic’: Foundation, History, And Implications

“…Kelly Devers and colleagues note that changes in three areas-the policy and purchasing context, managed care plan market, and hospital market-appear to explain why hospitals' leverage increased, particularly between 2000 and 2001. 16 As a result, private payers' payments relative to costs rose to 119 percent by 2005, thereby allowing hospitals to approach their historical margin levels. Aggregate total hospital margins between 1980 and 2003 fluctuated within a four-to-six-percentage-point range (Exhibit 4), suggesting ebbs and flows in the balance of market power over time.…”

From Managed Care To Consumer Health Insurance: The Fall And Rise Of Aetna

“…Traditional HMO products with low cost sharing protected enrollees from the financial consequences of their utilization decisions, whereas newer designs require the enrollee to bear more risk (but with a lower premium than otherwise would be necessary to cover costs). 8 Aetna's benefit buy-down has been modest (3.5 percentage points in 2002) but has laid the basis for more substantial design changes if and when purchasers become willing 4 to face the resulting backlash from beneficiaries. Aetna has addressed its claims costs and provider relationships through a good-cop-bad-cop combination of flexibility and discipline.…”

“…Providers were in full revolt, consolidating their local markets and demanding rate increases, litigating over delays in payment and denials in authorization, and, in some instances, simply walking away from HMO networks. 4 n The roar of investors' criticism. The capital markets had supported Aetna's growth strategy during the late 1990s under the principle that major economies of scale were achievable, but they retained a worry as to the earnings potential of overdiversified conglomerates, especially those built through acquisitions rather than internal growth.…”