Module 2
How Commercial Prices Are Set
Bargained rather than administered, averaging two and a half times Medicare, and public since 2022. What leverage produces and what transparency revealed.
By the end of this module, you will be able to:
- Explain how bargaining leverage between plans and providers determines price
- Benchmark commercial prices against Medicare and interpret the variation
- Describe what the transparency rules and the gag clause ban changed
- Negotiated Rates and Leverage Commercial prices are not administered, they are bargained. What each side can credibly threaten determines the number. About 5 min
- How Much More Than Medicare Employers pay hospitals about two and a half times Medicare rates for the same services, and the variation between states is larger than the average. About 5 min
- The Transparency Rules Federal rules forced negotiated rates into public files and banned the contract clauses that kept employers from seeing their own data. About 5 min
Module quiz
Answer all questions to see your score.
1. What did cross-market hospital mergers do to prices and to measured quality?
Because the merging hospitals were not competing locally, the result cannot be explained by local efficiency. What such mergers produce is bargaining leverage against payers.
2. Does the cost-shifting explanation account for high commercial prices?
Cost shifting is testable and the data does not support it as the main driver. That is a separate question from whether public payment rates are adequate.
3. What did the Consolidated Appropriations Act gag clause prohibition change for self-funded employers?
Before this, an employer bearing full claims risk could be contractually prevented from seeing the prices it paid. The ban lowers no price, but it makes informed purchasing possible.