Washington, D.C., May 20, 2025 -The ERISA Industry Committee (ERIC) today released a new white paper, “Beyond Cost Shifting: Market Power as the Key Driver of Hospital Prices” examining the validity of the cost shifting theory and evaluating the primary drivers of hospital prices in employer-sponsored health plans. Despite long-standing assumptions that cost shifting from public programs like Medicare and Medicaid is a primary driver of rising healthcare costs, a review of independent research suggests that is not the case. Market forces—including provider consolidation, employer bargaining power, and regional pricing dynamics—play a more influential role in shaping the rates employers ultimately pay for health care services.
“Employers and employees alike are burdened by unsustainable health costs,” said ERIC Senior Vice President of Health Policy Melissa Bartlett. “The research put forward in this paper confirms that addressing market power should be the focus of lawmakers working to improve the affordability of employer-sponsored health benefits. From enhancing price transparency to aligning payment rates through site-neutral policies, there are options on the table that Congress can act on today to start tackling costs. Americans simply cannot afford to continue to wait for relief.”
Hospital pricing and private plan payments have been a growing concern in health care economics, particularly in relation to employer-sponsored insurance. The paper, co-authored by Charm Economics, examined studies from the RAND Corporation, the National Bureau of Economic Research (NBER), Kaiser Family Foundation, One Percent Steps for Health Care Reform, and the Congressional Budget Office (CBO). On repeated occasions, the studies found that factors other than cost shifting significantly influenced employer-negotiated rates, including hospital market consolidation, provider power, and geographic variations.
With over 80% of hospital markets classified as highly concentrated, the paper emphasizes the need for targeted reforms to foster competition and address excessive pricing resulting from consolidation. The paper recommends two key policy actions policymakers can implement that enhance competition and transparency in the health care market.
- Enhance Price Transparency – The proposed Lower Costs, More Transparency Act (H.R. 5378 – 118th Congress) would require hospitals, ambulatory surgical centers, and diagnostic facilities to publicly disclose negotiated rates and cash prices, enabling better-informed decision-making.
- Align Payment Rates to More Accurately Match Services – Congress could establish and expand site-neutral payment programs in Medicare to establish benchmarks commercial payers can use to prevent excessive hospital pricing. Congress could also enact the Healthy Competition for Better Care Act (H.R. 3120 – 118th Congress), which promotes competition in two ways. First, it permits incentives for enrollees when they choose high-quality and low-cost providers. Second, it allows employers to contract with hospitals and providers that make sense for them and their workforce – rather than allowing employer plans to be held hostage by a single affiliate.
Link to the full paper here.