An empirical analysis of hospital ED pricing power

Empirical evaluation of market power that hospitals gain over health plans through hospitals' ability to cancel their contracts with plans while keeping large shares of plans' emergency patients and getting paid for them at above-market rates.

Case-study analysis of 5 California hospitals that initially had contracts with most commercial health plans and then cancelled all those contracts at the same time.

We conducted a before-and-after case-study analysis comparing volume, price, and net revenues for the 5 study hospitals 3 years before and up to 4 years after the cancellation of their commercial contracts. The volume and price trends in study hospitals were compared with data on control hospitals in the same geographic area over the matching study period.

Despite substantially increasing their prices on a noncontracted basis, the 5 study hospitals collectively retained 50% of their commercial health plan volume in first 2 years after the cancellation and 41% of their commercial volume in years 3 and 4, with net commercial revenues increasing as a result. At the same time, the simulated costs of treating the patients from out-of-network hospitals more than doubled for the health plans.

In hospital-payer negotiation, many hospitals have an upper hand: Their threat to retain large portions of their emergency patients and revenues after becoming out of network is credible and it imposes disproportionate costs on the payers, which partially explains the continuing rise in hospital prices.