The Solutions

Creating rational commercial prices

Unregulated prices in the commercial market create opportunities for consolidated providers, insurers and TPAs, and middlemen to increase revenue by camouflaging or inflating prices.

Many hospital and physician markets are highly concentrated after decades of horizontal and more recently vertical consolidation. When providers consolidate, dominant providers use their market power to demand higher prices for care, resulting in commercial prices that are, on average, about 2.5 times what Medicare pays for the same hospital-based service. Those that can frequently utilize their leverage to successfully demand and secure payments that are hundreds of times Medicare prices for some services. Unregulated prices also create numerous opportunities for insurers, TPAs, and middlemen to profit.

Policies to limit and rationalize the price of health care services are needed to meaningfully lower health care spending in the commercial market.

Policies that limit provider prices have the most potential to lower spending in commercial markets. A growing number of ideologically diverse states are reaching this conclusion and pursuing policies to limit the level and growth of health care prices. Policies needed to rein in high and rising prices include:

• Limiting payment rates for providers to lower the most excessive prices.
  • Price limits should be broadly applied across in- and out-of-network services for the largest impact.
  • The limits could be varied across provider types and geographic markets to reflect reasonable payment variations and maintain or improve access. For example, higher price limits could be set for independent rural and safety net providers.
• Implement site-neutral payments for services that can be safely provided in lower cost settings to eliminate current payment distortions that incentivize consolidation and increase spending.
• Ongoing monitoring and oversight (discussed more below) to detect evasion of the price limits and inform adjustments to the caps as needed, for example, to ensure sufficient access to high-quality care.

These policies would substantially limit the pricing leverage of consolidated providers and reduce abusive billing and unjustified pricing.

Limiting payment rates in the commercial market will reduce excessive prices for care while also creating more rational payment rates across providers and markets. These policies will reduce the market leverage that consolidated providers wield, and limit insurers and TPAs’ ability to benefit from inflating payments to providers or other health care entities they own or with which they contract. Capping prices will also eliminate much of the demand for middlemen whose business model has failed the very employers they have been hired to serve by relying on maximizing reimbursements, overbilling, or otherwise extracting profits to benefit the stakeholders themselves. This includes but is not limited to middlemen such as revenue cycle management firms, claims re-pricers, and independent dispute resolution management companies.

Eliminating conflicts of interest and cost-increasing relationships across stakeholders

Even if price caps were in place, problematic cost-increasing dynamics would persist.

The players in the broad health care ecosystem are now inextricably intertwined. Thus, while limiting prices providers can charge would quickly eliminate substantial amounts of abusive billing and the demand for some middlemen, it would not prevent, for example:

• Insurers and TPAs from extracting fees from contracts with an array of other vendors (e.g., point solution vendors, data warehouses);
• Insurers and TPAs from using anti-competitive contracting clauses to benefit their own subsidiary entities and others with which they have financial agreements;
• Insurers and TPAs from steering patients to the clinicians they employ or with whom they have made financial deals while reimbursing other clinicians at lower rates;
• TPAs and middlemen sharing “savings” generated from later audits on claims paid without any review a priori;
• The type of behavior that allows the largest players in the landscape to set conditions and extract fees that increase costs to purchasers based on market power and opaque contracting terms.

Multiple policy options are needed to disrupt the vast, interwoven financial dynamic between stakeholders.

Successfully eliminating the cost-increasing incentives at play would require multiple policy strategies, including:

• Prohibitions on co-ownership across TPAs, insurers, health providers and systems, and health industry middlemen, including:
  • A prohibition on holding controlling interests in multiple types of health care entities (e.g., one company with effective control over a hospital and a management services organization).
• Prohibitions on anti-competitive contracting terms across health care entities, including:
  • TPAs requiring employers contracting with them to use specified vendors or subsidiaries, such as auditors, point service vendor(s), stop-loss insurers or data warehouses;
  • Most-favored-nation, all-or-nothing, anti-steering, anti-tiering, and exclusive contracting clauses, while strengthening existing gag clause prohibitions — all strategies that stakeholders use to inhibit employers and insurers from promoting efficiency in purchasing care.
• Limits or prohibitions on fees that entities can extract related to contracting with each other, including:
  • Prohibiting fees paid to one entity for establishing and maintaining contracts with another entity;
  • Prohibiting shared savings fees;
  • Limiting TPAs to receiving per member per month payments alone, as opposed to the array of amorphous fees currently collected, to make their true price to employers transparent.
  • While the 2021 Consolidated Appropriations Act requires disclosure of direct and indirect compensation received by brokerage and benefit consulting firms (and the 2026 CAA clarified that this applies to TPAs and PBMs as well), there are no prohibitions on the types of compensation received (e.g., commissions from vendors that consultants push clients to use).

These policies would interrupt many of the cost-increasing dynamics between and within health care entities.

This array of policy strategies is directed at the most prominent, known conflicts of interest and hidden fees that have created an environment conducive to increasing commercial health insurance spending without returning commensurate value to consumers, employers, and taxpayers. Effectively implemented and enforced, these policies should interrupt many of the incentives that increase spending through hidden fees, inter-company agreements, and self-dealing. Combined with the price limits described earlier, the market for services across these entities should become more transparent and more competitive based on price and the quality of services provided.

Eliminating problematic practices typically employed by private equity and now being adopted by others

Tactics often used by private equity investors frequently lead to increased health care costs, lower quality of care, and financial instability for providers.

Private equity (PE) ownership in health care has grown substantially in the last 20 years with cost implications attributable to its profit-driven strategies. In acquisitions and management of provider groups, PE firms deploy a “playbook” of financial engineering tactics to prioritize short-term profits. Tactics common, but not exclusive to PE include:

• Debt loading – When an investor borrows substantial money and shifts the debt onto the acquired company. Specific examples include leveraged buyouts and dividend recapitalizations.
• Asset stripping – When investors sell off valuable assets to generate quick profits. For hospitals, these assets can include buildings, land, and medical equipment. The profits are not reinvested into the company but instead distributed to investors.
• Sale-leasebacks––when a company sells its real estate property to another company and leases it back from the new owner––this is an example of asset stripping.
• Revenue sweeping – When an investor directly transfers revenues or excess cash from the company’s operating account into investor-specific accounts, giving the investor total control of the company’s revenues.
• Harmful cost cutting maneuvers – When a company cuts costs in attempts to maximize profits that undermine patient care. This can include reductions in staff, overhead costs, resources (medical supplies, utilities), and service lines.
• Self-dealing management service organizational fees – Recurring fees paid to the investors to ostensibly cover management, consulting, financial, and other related services.
• Add-on acquisitions (“roll ups”) – When an investor acquires one company, then acquires several additional companies and merges or “rolls” them together into a consolidated entity that is more valuable than the sum of the individual entities. The individual transactions often fall below federal antitrust reporting requirements.

These strategies, whether used by PE or other owners, generate short-term profits at the expense of care quality and access. Evidence indicates that these tactics frequently increase health care costs, reduce quality, and compromise institutional financial stability, as seen in a slew of recent hospital bankruptcies. Even when providers are paid at rational prices and conflicts of interest and hidden fees between stakeholders are minimized, new policies are needed to prohibit PE and other owners from using these financially extractive practices. Without them, private equity firms and other corporate entities will continue to undermine quality of care and financial sustainability in pursuit of large profits and short-term resales.

Multiple policy options are needed to discourage financially extractive tactics that prioritize short-term financial gain over long-term investment in high-quality patient care.

Multiple policies are needed to discourage problematic practices embraced by PE and others in health care deals, including:

• Substantial limitations on debt financing in acquisitions of hospitals, health systems, and provider groups;
  • This should include limits on the percentage of debt that can be used to finance a purchase, prohibitions on dividend recapitalizations and debt-loading practices after acquisition, and strict limits on the number of years before resale to prevent short-term purchases to pay off debt.
• Prohibitions on asset stripping, sale-leaseback agreements, and revenue sweeping, as well as other practices that increase operating costs unnecessarily to profit investors;
  • This should include prohibiting excessive self-dealing through management service organizational fees.
• Restrictions on cost cutting maneuvers that attempt to maximize profits at the cost of quality of care;
  • This should be paired with requirements for staff-to-patient ratios and incentives to maintain critical services (e.g., cardiac, maternity, ER), among other requirements to ensure the quality of care and facilities.
• Implementation of policies that can increase the likelihood of early warning of institutional financial problems, including;
  • Whistleblower protections for physicians and staff, including those employed by staffing companies, who are often in a position to recognize when the organization is having financial problems even before the deterioration in the quality of care for patients.
  • Prohibitions on non-competes for physicians and other providers, including those employed by staffing companies.
  • Extensions of due process rights to physicians and other providers employed by staffing companies.
  • Creation of a reporting portal for unpaid vendors.
• Broadening antitrust application and enforcement to enhance oversight of health care acquisitions;
  • Regulatory authority to approve, disapprove, or condition transactions––regardless of size and non-profit/for-profit status––that pose risks to the public interest would more effectively impede anti-competitive actions and monopoly-like market conditions. Providing authority to consider risks to the public interest would broaden oversight beyond traditional antitrust measures of economic harm.
  • Pair increased regulatory authority with expanded notification requirements that apply to smaller health care mergers and acquisitions or changes in operational control.
  • Devote additional resources to antitrust oversight and enforcement to support these expanded responsibilities.

Overall, these policies would deter PE and other owners from seeking short-term gains to the detriment of costs, quality, and financial instability in health care markets.

Capped provider prices and limitations on conflicts of interest and hidden fees between stakeholders will go a long way to eliminate wasteful and abusive health care spending and create a more efficient and rationally priced system. However, these policies do not target the extractive tactics often embraced by PE and known to increase health care costs for consumers, reduce quality, and compromise institutional financial stability. Restricting these practices and implementing policies to capture “early warnings” of financial problems will discourage PE investors and other owners from employing strategies that prioritize short-term profits over investment in long-term, high-quality care.

Oversight of reforms would require a federal entity with robust enforcement powers

Minimizing industry gaming and ensuring full and effective implementation for each of the three categories of policy reforms outlined above would require new federal monitoring, oversight, and enforcement responsibilities. An array of responsibilities would be required, including those outlined below.

• Development, maintenance, and analysis of a set of metrics that would inform adjustments to the provider payment rate caps over time, allowing for:
  • the measurement of coding intensity and service volume increases to prevent possible stakeholder efforts to maintain pre-reform profit levels;
  • sufficient access to services;
  • total spending and premium changes.
• Development and implementation of a system for insurers, TPAs, providers, and middlemen to disclose to regulators remaining financial arrangements between the stakeholders as well as any other regulator requested financial statements;
• Development of a review and auditing system to examine stakeholder financial disclosures for accuracy, comprehensiveness, and appropriateness to ensure that no creative means to avoid the intent of the financial reforms are being employed. Examples would include:
  • audits to ensure provider payment limits are being adhered to;
  • review of financial statements from health care entities;
  • monitoring evolving types of TPA contract provisions.
• Creation of a reporting portal so that vendors and staff are able to report early warning signs of institutional financial distress or violations of new regulations.
  
  

These duties could be undertaken by a new governmental or quasi-governmental federal entity with an appointed board free of conflicts of interest–– excluding stakeholders with a financial interest in the board’s decision-making––given broad data collection and enforcement authority, and provided sufficient resources to support a professional staff and perform the delineated functions. This entity would need the authority and capacity to fully monitor compliance with these requirements and take robust enforcement action, as needed.

As a federal regulatory agency, such a commission would require a significantly-sized staff and considerable resources. The array of responsibilities assigned to the commission would have to be carefully balanced with the resources provided to feasibly implement them. Still, the commission’s authorities to collect data and enforce the reforms should be quite broad in order to allow it to ensure compliance with their intent. The need for specific oversight activities may change over time with industry and practice trends, and thus flexibility to identify changes and respond expeditiously when appropriate would be especially valuable for rationalizing costs and allowing for effective competition on quality and value on an ongoing basis.

Conclusion

This paper outlines a broad set of policy approaches that together would reduce the harms arising from decades of unchecked consolidation and the increasingly intertwined financial relationships between health care entities. Capping and rationalizing the prices paid for care is an important place to start. Rational prices would curb the worst pricing abuses and provide meaningful financial relief to families, employers, and taxpayers. We also lay out complementary proposals to prohibit ownership and contractual relationships that restrict competition and to limit the opportunity for private equity firms and others to generate large short-term profits at the expense of affordability and access.

These proposals represent a significant political lift. But experience shows that health care entities often respond to incremental policies that do not fundamentally realign their incentives by evolving their own tactics and finding new ways to continue generating profits without increasing value. Thus, we believe a robust approach is needed given the breadth of market failures and systemic incentives to increase costs. There is growing recognition of the need for bold action. Several of the ideas included here build off bipartisan proposals introduced in Congress or pursued across politically diverse states. This paper is intended to advance and inform the emerging conversation about ways to eliminate perverse financial incentives and address problematic relationships that increase health care spending and put access to high-quality care at risk. Without action, the current trajectory of spending growth, greater consolidation, and complexity is likely to continue.

ⁱ PBMs raise similar issues and concerns about problematic profit maximization but are beyond the scope of this paper.

The authors are grateful for support for this work from Arnold Ventures, research support from Abigail Knapp and Julia Burleson, and comments and suggestions from Sabrina Corlette, Chris Jennings, Katie Keith, and Miriam Straus.