By Jennifer Schaefer, MBA, ChFC, CLU, RHU, REBC, SHRM-SCP
Founder & CEO, JS Benefits Group | Forbes Business Council Contributor | Co-Host, Executive Leaders Radio
Hospital consolidation is becoming an increasingly important issue for employers trying to manage the rising cost of employee healthcare.
I recently discussed this issue as an expert source in a Moneywise article examining how hospital “mega-mergers” can contribute to dramatically different healthcare prices—even for the same procedure under the same health plan.
Read the Moneywise article featuring Jennifer Schaefer:
https://moneywise.com/news/top-stories/hospital-mega-mergers-medical-costs-knee-replacement
The Moneywise article examined a striking example involving knee replacement surgery. According to the report, a knee replacement procedure under the same health plan cost approximately $16,000 at one North Carolina medical center and about $40,000 at another hospital roughly an hour away. The article examined how consolidation can reduce competition and change the negotiating dynamics between hospitals and insurers.
For employers, this is about much more than the price of one knee replacement.
It is about what happens when healthcare providers gain greater negotiating leverage—and how those costs ultimately make their way into employer-sponsored health plans.
What I Told Moneywise About Hospital Consolidation
One of the most important issues surrounding hospital mergers is what happens to negotiating power.
When two hospitals that previously competed for the same business come under the same ownership, an insurer can have fewer alternatives when building its network.
As I explained to Moneywise:
“When two hospitals that previously competed for the same business end up under the same ownership, the insurer has fewer alternatives.”
If a health system controls enough hospitals and physicians in a market, an insurer may have difficulty offering a competitive network without including that system.
That changes the negotiation.
Instead of asking:
“What rate do we need to offer to win this business?”
the insurer may be asking:
“What rate do we have to accept to keep this system in our network?”
Those are completely different conversations.
And only one of them is likely to produce meaningful pricing pressure.
Why This Matters to Employers
It can be easy for employers to view hospital mergers as a healthcare-industry issue that has little to do with their business.
But employer-sponsored healthcare connects the two.
The chain can be straightforward:
Hospital pricing → negotiated insurance rates → claims costs → health-plan costs → employer renewals and employee costs
As I told Moneywise, employees don’t receive a bill labeled a “hospital consolidation surcharge.”
Instead, the impact can arrive later as a higher renewal, a larger paycheck deduction, a higher deductible, a narrower network—or less money available for other forms of compensation.
That is why employers need to understand what is driving their healthcare costs rather than simply reacting to the final renewal percentage.
The Same Procedure Doesn’t Always Mean the Same Price
One of the most important points from the Moneywise story is that the procedure itself doesn’t tell the whole story.
The negotiated rate matters.
The provider matters.
The facility matters.
The market matters.
And the competitive environment matters.
As I explained in the Moneywise article, the procedure may be similar, but negotiated rates can be dramatically different between facilities under the same insurer.
The type of facility can matter as well.
A hospital outpatient department may charge a facility fee that an independent ambulatory surgery center does not.
That doesn’t mean an independent facility is automatically the right choice. Quality, experience and outcomes still matter.
But employers and employees should understand that where healthcare is delivered can have a significant effect on what that care costs.
Hospital Consolidation Is a National Issue
The situation described in the Moneywise article isn’t necessarily an isolated example.
Research and healthcare-market data have increasingly shown concerns about consolidation and pricing power.
KFF has reported that consolidation has led to higher prices in many healthcare markets without clear evidence of corresponding increases in quality.
The recent knee-replacement example provides a particularly understandable illustration.
A patient can travel a relatively short distance and potentially encounter a dramatically different negotiated price for essentially the same procedure.
For employers paying for healthcare across an entire workforce, small differences in individual procedures can become substantial differences across thousands of claims.
Why Employers Should Look Beyond the Premium
When an employer receives a health-plan renewal showing a significant increase, the natural reaction is often:
“How do we lower the premium?”
That’s understandable.
But the better question may be:
“What is actually driving the increase?”
If underlying hospital and provider prices are increasing, simply shifting more costs onto employees doesn’t solve the underlying problem.
It changes who absorbs the cost.
Employers should instead examine the factors contributing to healthcare spending and determine whether there are opportunities to improve the value of their healthcare dollars.
That can include evaluating:
- Provider networks
- Hospital reimbursement rates
- High-cost claims
- Site-of-care opportunities
- Outpatient versus hospital-based services
- Healthcare navigation
- Employee education
- Plan design
- Alternative funding strategies
- Healthcare cost-containment opportunities
This is where employee benefits consulting and strategy can become an important part of an employer’s broader business strategy.
Site of Care Can Make a Difference
The facility where a procedure takes place can have a major effect on cost.
For appropriate procedures, an ambulatory surgery center or other outpatient setting may have a different cost structure than a hospital outpatient department.
But cost should never be considered in isolation.
In my comments to Moneywise, I emphasized that patients should not automatically choose the cheapest facility. They should consider how frequently the facility performs the procedure and what quality information is available.
That is an important lesson for employers as well.
The objective shouldn’t be:
Find the cheapest healthcare.
It should be:
Find high-value healthcare—appropriate quality at a reasonable cost.
Employers Need Better Healthcare Intelligence
Employers can’t control whether hospitals merge.
They can’t determine every reimbursement rate negotiated between a health system and an insurance carrier.
But employers can become more sophisticated purchasers of healthcare.
That starts with asking better questions.
Where are our healthcare dollars actually going?
Which providers are generating significant claims?
Are there large differences in negotiated rates for the same services?
Are employees receiving guidance about where appropriate care can be obtained?
Are there opportunities to use lower-cost sites of care without compromising quality?
Is our benefits strategy addressing the underlying drivers of healthcare costs?
These questions move an employer from simply managing benefits to actually managing healthcare strategy.
Even Employees Can Become Better Healthcare Consumers
The Moneywise article also highlighted something that individuals can do when they are facing a planned medical procedure: ask questions before receiving care.
One practical step is to ask for the procedure’s CPT code.
As I explained to Moneywise, the CPT code gives the patient and insurer something specific to price. Without knowing exactly what procedure is being performed, meaningful price comparisons become much more difficult.
Employees should also understand that the cheapest option isn’t automatically the best option.
Quality matters.
Experience matters.
Outcomes matter.
The goal is to make an informed decision that balances cost and quality.
The Employer Benefits Connection
Employee benefits are often discussed primarily as a recruiting and retention tool.
They absolutely can be.
But benefits are also a major financial commitment.
For many organizations, healthcare represents one of their largest employee-related expenses outside of payroll.
That means benefits strategy needs to address two objectives simultaneously:
Provide valuable benefits employees appreciate while managing the underlying cost of healthcare.
Those goals don’t have to conflict.
The key is understanding where the money is going and identifying opportunities to improve the value of every healthcare dollar.
At JS Benefits Group, our focus is helping employers evaluate employee benefits through a strategic lens—balancing employee needs, healthcare costs and the long-term objectives of the organization.
What Employers Can Do Now
Employers don’t have to wait until their next renewal to begin asking these questions.
Depending on the organization, employers can consider:
1. Analyze claims and utilization
Understanding where healthcare dollars are actually being spent can reveal opportunities that aren’t visible on a basic renewal statement.
2. Evaluate provider networks
Network design can have a significant effect on the cost of care.
3. Examine site-of-care opportunities
Some services may be appropriately delivered in lower-cost outpatient settings rather than hospital facilities.
4. Improve employee education
Employees can’t make informed healthcare decisions if they don’t understand their benefits or the financial implications of different care options.
5. Evaluate funding strategies
Depending on the employer’s size, risk tolerance and circumstances, fully insured, level-funded and self-funded approaches may each present different opportunities and considerations.
6. Look beyond the renewal percentage
A renewal increase is an outcome.
Employers need to understand the factors behind it.
The Bigger Lesson
Hospital consolidation is a complex issue, and there isn’t one solution that will solve rising healthcare costs.
But employers can control how they respond.
They can accept increasing healthcare costs and pass more of those costs onto employees.
Or they can take a more strategic approach to understanding how their healthcare dollars are being spent.
The second approach requires more analysis, more questions and a willingness to look beyond the renewal percentage.
But it can also create opportunities.
The lesson from the Moneywise story is bigger than the price of a knee replacement.
Healthcare markets matter. Provider competition matters. Negotiated rates matter. And ultimately, those factors matter to employers.
As healthcare costs continue to rise, employers need to become increasingly informed purchasers of healthcare—not simply purchasers of insurance.
Healthcare cost containment starts with understanding what is actually driving the cost.
And hospital consolidation is a piece of that conversation that employers can no longer afford to ignore.
About the Author
Jennifer Schaefer, MBA, ChFC, CLU, RHU, REBC, SHRM-SCP is the Founder & CEO of JS Benefits Group, an employee benefits consulting and strategy firm serving employers across Pennsylvania, New Jersey, Delaware, Maryland, New York and nationwide.
Schaefer is a Forbes Business Council Contributor and Co-Host of Executive Leaders
