Market concentration makes negotiation harder

Kaiser Health News reported on one elected official's campaign to reduce health expenses for the state. North Carolina's treasurer has been trying to secure a better deal for the insurance that the state pays for its over 700,000 employees and their dependents. Apparently, the hospital association has felt threatened enough by the treasurer's efforts that it lobbied for legislation to prevent reference pricing and has not resorted to contributing to the campaign of the treasurer's challenger.

The article suggests that the size of the hospital networks has made it difficult for the treasurer to extract pricing concessions, although the treasurer has resisted further expansions of those chains. When a payer is too reliant on a few large provider networks, the payer has little leverage given how its members may be out of realistic options for providers. In this situation, it is perhaps surprising that the treasurer expected to be able to willingly give up tens of millions of dollars in annual revenue.