Are Hospitals Exercising Market Power in Healthcare?

Are Hospitals Exercising Market Power in Healthcare?

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Where the Market Power in Healthcare is Held

Hospitals are powerful in ways that the average person would not recognize, because we don’t see the contracts signed between hospitals and insurance companies. Hospital systems hide terms of service in these contracts: they disallow patients from obtaining lower-cost services elsewhere. This is market power in healthcare.


When prominent insurance providers cannot find a way around the restrictive language built into their contracts with major hospitals, hospitals are exercising healthcare market power.


Examples of this include:

  • Preventing insurers from welcoming top-rated healthcare providers into their networks of care.
  • Requiring patients to see only the healthcare providers that are within that particular hospital system.
  • Blocking insurance companies from writing new plans for hospitals other than that particular hospital.

Dominant power in healthcare is held by hospitals that demand by contract that insurers include their hospital system in all insurance plans they write.


The flip-side of this would be if an insurance carrier were free to exclude the most-costly hospitals in plans they write – which would result in consumers seeing a cost savings of more than 10%. Furthermore, consumers could enjoy a minimum of 3% to 7% savings if insurance carriers were not prevented from steering them away from the most-costly care providers for our healthcare services. Hospitals exhibit market power when they disallow these freedoms.


Hospital systems can charge a “facility fee” on every patient visit even when being seen by a doctor out in the suburbs, away from the main hospital campus. Insurance companies sign hospital contracts with this hidden terminology, and subsequently consumers are captured. Employees are happy their employer has offered health insurance as a benefit of employment, but once again it is the hospital holding market power when the employee pays these facility fees.


Hospital market power even extends to preventing consumers from getting true cost-comparisons when attempting to use online shopping tools to find reasonably priced healthcare services.


Healthcare systems are continuing to face lawsuits by states across the US as a breach of market power used to impede insurers from negotiating in competition to ultimately offer consumers lower premium plans. Check back with benefEx for helpful information about these and other topics of interest.